Urgent DRG Workgroup Participation Request & January State Budget Update

Date:                     January 5, 2012

To:                        PEACH Board of Directors & Associates

From:                    Catherine K. Douglas

I hope that you all had a joyful and restful holiday season and are galvanized for what promises to be a very active legislative year with critical changes proposed for private DSH hospitals.  While there were many positive accomplishments in 2011 such as the approval of a 30-month hospital provider fee, CMS approval of the 6-month hospital provider fee, and congressional action to fund the physician SGR increase without further reductions to hospitals, January 2012 presents new and serious challenges for private DSH hospitals.  While we will discuss additional emerging issues at our Board meeting on January 20, two items require your immediate attention.


Throughout the state’s process to develop a new DRG System to replace negotiated CMAC contracts for FFS patients, data have been promised to individual hospitals and CHA so that modeling could determine the likely effects of the new methodology.  Unfortunately, to date, data has only been provided to individual hospitals that are part of the CHA/DHCS technical workgroup.  Very few PEACH members have designated qualified staff to participate in the workgroup and our voice has been relatively quiet on these calls. 

It is imperative that all PEACH members appoint a qualified finance staff person to actively and vocally participate in the remaining CHA/DHCS DRG technical workgroup meetings by emailing Matt Absher at CHA; mabsher@calhospital.org this week.  

The next meeting of the workgroup is set for January 19, 2012 with one remaining meeting set for a date in February that is yet to be announced.  Key issues that are critical to your hospitals, which are still unresolved and which will be taken up on January 19 are:

  • The need for the state to provide you with all of their data sets necessary for you to conduct an analysis to determine the net effects of the new Medi-Cal payments for your hospitals once the DRG system is fully implemented January 1, 2013 before any conclusions on the design elements are finalized by the state;
  • The need for the state to provide CHA with all of the statewide hospital data so that, like the provider fee, CHA can model the net effects on each hospital and hospital system and report these to the membership; 
  • The critical nature of retaining the DSH replacement and supplemental payment programs in their current form and outside the new DRG system. (Currently the state and some key and vocal hospital representatives of the workgroup are advocating for DSH and supplemental payments to be incorporated into the total payment pool available in the DRG system;
  • Determined considerations for historical providers of high volumes of care to the populations being served through the DRG system so that the private safety net of hospitals is not harmed by reduced base level payments;
  • A unified hospital position that a transition to the new DRG system over a period of some years is necessary to determine the efficacy of the model and to remedy any unintended consequences.

Please let me know that you have designated your participant on the DRG workgroup by cc’ing me on your email request for participation to Matt Absher.  We will have a call of all PEACH member workgroup participants in advance of the January 19 CHA/DHCS call to discuss the impending issues.


In a last minute surprise move, this afternoon Governor Brown released his 2012-13 Budget one full week ahead of time with major impactions for private DSH Hospitals.  While we have not had an opportunity to review all of the budget documents, following is our initial review.  A more detailed analysis will be provided to you as more is known and our plan for addressing these issues will be discussed during our January 20 Board meeting.

1. Presumes passage of the Governor’s November 2012 ballot initiative which raises $7 billion each year for 5 years in new revenues through increased state personal income and sales taxes.

2. Trigger cuts of $5.4 billion, primarily in education, are authorized in the event the voters do not approve the new revenues, but there are no new trigger cuts for the Health and Human Services Budget.

3. $100 million in Stabilization funding from the 2005 waiver that has yet to be paid out to private DSH hospitals has been proposed by the Governor to be diverted for two different purposes: 1) to pay for the state costs of anticipated litigation by California Hospital Medical Center; 2) to offset state general fund losses.  Director Toby Douglas indicated to me that while this is not a proposal the Governor feels good about, the state’s budget shortfall requires cost savings from all unprotected sources.

4. Escalation and expansion of the 1.2 million Dual Eligible population into Medi-Cal managed care.  As you know, the state is slated on January 1, 2013, to begin a three-year federal demonstration project to move the dual eligible population into Medi-Cal managed care in four counties.  The Governor’s proposed budget seeks to expand this demonstration project to 10 counties by 2013, a proposal that is also embodied in SB 7 (Steinberg) as amended January 4, 2012.  

The transition to managed care for Medi-Cal benefits (including skilled nursing and IHHS) will occur in the first year, with the benefits becoming a more integrated plan responsibility over the subsequent two years. The transition of Medicare benefits to managed care will occur over a three-year period starting first with eight to ten counties that already have the capacity to coordinate care for these individuals. Beneficiaries in counties in which Medi-Cal managed care plans may not yet have the capacity to take on additional beneficiaries will begin to transition six or twelve months later.  Payments are intended to be on a capitated basis with rates to be determined at a later date.  It has not been determined how Medicare and Medicaid DSH payments will be addressed.  The Administration estimates an annual General Fund savings of $842 million not including the federal match.

5. Provides the state with flexibility to rapidly change benefits, services, rate methodologies and payment policies faster than the current regulatory process allows. Examples of potential program changes cited by the state include reducing laboratory rates, no longer funding avoidable hospital admissions, and no longer paying for services of limited value.

6. Reforms Payment methodologies for federally qualified health care centers.

7. Medi-Cal managed care will be expanded to all 58 California counties.

8. After an initial 90 day open enrollment during which Medi-Cal beneficiaries can change plans, a lock-in to that plan will be instated for a 12 months period.

9. Healthy Families Program payments will be reduced to that of Medi-Cal payments.

10. No further Medi-Cal reductions are slated for hospitals.

As always, please do not hesitate to contact me at 916-801-6466 if you have any questions.

San Diego Union-Tribune: Scripps Mercy unveils larger ER


By Janet Lavelle

Wednesday, January 4, 2012

They were all there for the festivities Wednesday morning: the mayor, a city councilman, the hundreds of donors, hospital officials and medical staff. There were speeches, buffets of cranberry juice and muffins, and long lines to tour the new Conrad Prebys Emergency & Trauma Center at Scripps Mercy Hospital in Hillcrest.

But it was Dr. Valerie Norton, the emergency department’s medical director, who described the new facility’s importantance.

“This means so much, I get tears just talking about it,” she said, her voice choking up. “We had been in a cramped outdated space for so long. We were sometimes putting patients in hallways, we couldn’t see them quickly enough, it was noisy. This is huge, to have so much room and a healing space with quiet and privacy.”

Scripps Mercy Hospital has the one of the county’s busiest emergency departments and one of just two Level 1 trauma centers for adults, able to care for the most critical patients (nearby UCSD Medical Center is the other). The 513-bed hospital treats nearly 60,000 patients in its emergency room and 2,400 patients in the trauma unit each year.

The new $41.3 million facility, which will see its first patients early next week, is a three-phase project that doubles the size of the current emergency department. The facility that opens next week has 27 emergency department beds in individual glass-walled rooms, and a 4-bed trauma unit with room for eight gurneys if needed. The department has its own dedicated lab, and sophisticated 64-slice CT-scanner to diagnose patients more quickly without having to rely on equipment being used by the rest of the hospital. Wireless technology will be used to monitor patients. A large waiting room was designed in soothing tones of teal and wood.

When the new facility opens, half of the adjacent old emergency department will be closed for renovations, leaving 20 beds still available in the old wing. The process will be reversed so that when all three phases are done in 2013, the entire department will have 49 beds, all in private glass rooms large enough to accommodate family members.

The center is named after San Diego developer and philanthropist Conrad Prebys, who gave Scripps Mercy $10 million in 2006 for the project. Since then, he’s given $45 million to Scripps Health for the Conrad Prebys Cardiovascular Institute, which is expected to open in La Jolla in 2015.

As he toured the gleaming new Hillcrest facility on Wednesday, Prebys said he decided to make the donation during a breakfast with Scripps officials.

“I saw how we were going to be able to increase the size of the emergency and trauma center and that it’s open to everyone,” he said. “I shot from the hip and said yes. And, boy, did I hit a home run, from the way this looks today.”

All five hospitals in the Scripps Health system will be undergoing renovations or expansions in the next two decades, both to handle patient demand and to comply with tougher state earthquake standards in 2030, Scripps Chief Executive Chris Van Gorder said.

The Office of Statewide Health Planning and Development approved construction plans this week for a 2-story, 60,000-square-foot facility at Scripps Memorial Hospital in Encinitas, Van Gorder said. The building, expected to open by 2015, will house a 27-bed emergency department on the first floor and 36 private rooms for acute-care patients on the second floor.

“By the end of February, we’ll be starting construction there,” he said. “We’ll use what we learned here in building that emergency department.”

McClatchy Newspapers: California’s Brown releases new budget



Published Thursday, Jan. 05, 2012

SACRAMENTO, Calif. — California Gov. Jerry Brown released a new budget Thursday that would slash health and welfare programs for the poor and ask voters to pump nearly $5 billion back into education through higher taxes.

Brown framed his $92.6 billion spending plan as an either-or decision dependent on his $6.9 billion initiative to increase taxes on sales and the state’s high earners.

If voters approve his taxes, he suggested, the state can begin paying down years of debt and reverse recession-era cuts to K-12 schools, which have stuffed more students into classrooms and shortened the instructional calendar to save funds.

“With the tax program, we will eliminate the budget deficit finally, after years of kicking the can down the road,” Brown said.

If voters reject his plan, schools may have to cut deeper and prolong a patchwork of borrowing to maintain their operations.

For K-12 schools and community colleges, the tax measure would provide nearly $4.8 billion more than they received this fiscal year, roughly a 10 percent increase. Department of Finance Director Ana Matosantos suggested losing that money if voters reject taxes would be “equivalent to” cutting three weeks of school, though education experts believe such drastic measures would be unnecessary.

If the taxes fail, the governor proposed $200 million cuts each to the University of California and California State University systems, which have relied on substantial tuition hikes to offset state reductions in recent years.

Brown also suggested eye-opening ideas such as eliminating lifeguards at state beaches and cutting 1 in 5 state park rangers. Each cut would save $1 million, a mere speck of dust in a $92.6 billion general fund.

“This budget proposal is the largest ransom note in California political history,” said Dan Schnur, director of the Jesse Unruh Institute of Politics at the University of Southern California and a former GOP strategist. “Brown is essentially telling voters to either support his initiative or there’s going to be three fewer weeks of school next year. There’s no guarantee of success, but this is probably the most politically viable course he could take to build support for the initiative.”

Brown waved off suggestions that his plan was designed to curry favor among voters for his tax proposal. He suggested it was merely an arithmetic exercise.

“These numbers emanate from the bowels of the Finance Department bureaucracy, and as those emanations flow into the governor’s office, then I get them,” he said.

The Democratic governor scrambled Thursday to unveil his budget plan five days early after it was inadvertently posted on his Department of Finance website.

Even without his higher taxes through 2016, Brown described an improving fiscal landscape as the recovering economy provides more tax dollars and the state maintains cuts to higher education, health care and social services.

The Department of Finance estimated the state faces a $9.2 billion deficit over the next 18 months, substantially less than the $26 billion gap Brown described last January and smaller than the $12.8 billion gap the nonpartisan Legislative Analyst’s Office forecast in November.

Republicans criticized Brown for his tax hike plan, noting that the state deficit is already shrinking on its own as the economy recovers and tax revenues increase. Without higher taxes, Brown estimates the structural deficit would shrink to $1.9 billion in 2015-16, though that would mean continued borrowing and recession-level funding for public programs.

With or without the taxes, Brown asked lawmakers for $4.2 billion in cuts, including $946 million to welfare-to-work and $446 million to subsidized child care.

The welfare cut would save money in part by eliminating grants for parents who don’t meet federal work requirements after 24 months, compared to 48 months now. The governor also called for a $71 family reduction – from $463 to $392 – in average monthly grants to children whose parents are no longer eligible for welfare-to-work.

Frank Mecca, executive director of the California Welfare Directors Association, said welfare recipients are struggling to find jobs in an economy with high unemployment.

“Twenty-four months isn’t enough time, and there aren’t enough jobs,” Mecca said. “I mean, if we thought people could do it, we wouldn’t be saving a billion dollars.”

Brown also proposed saving $679 million by shifting 800,000 residents eligible for both Medi-Cal and Medicare into managed care medical plans. They currently rely on “fee-for-service” plans that give them more control over their medical providers.

Anthony Wright of Health Access California warned that the proposal affects patients with significant disabilities. He suggested the Brown plan would constrain their ability to see specialists necessary to treat their conditions.

Brown wants the Legislature to enact most of his budget cuts by March because it takes at least three months to install them.

But Democratic leaders have dismissed his call for early action. Given the trend of growing revenues, they do not want to make cuts now, only to find out that more money rolls in this spring when income taxes are paid.

“Why would we make cuts that are going to harm people and harm the economy in March when in fact in May there’s a … probability that the deficit number is going to be less,” said Senate President Pro Tem Darrell Steinberg, D-Sacramento.

The school funding piece is the most convoluted, as usual in state budgeting.

If voters approve his tax measure, K-12 schools and community colleges would receive nearly $4.8 billion more than they do in the current fiscal year, for a total of $52.5 billion in state and local tax revenues.

Even without taxes, schools are owed about $2.4 billion more this year because of growth in state revenue and past promises made by state leaders. If the taxes fail, Brown proposes erasing that $2.4 billion for classrooms through an accounting maneuver that counts school bond debt payments toward what the state owes education. Two education lobbyists said that would be legally questionable.

It would leave K-12 districts with roughly the same amount they get this school year. But school advocates say they would have to borrow more money to keep programs at their current bare-bones level because of how the state delayed past payments.

Districts also face growing labor costs each year, while they have already cut school days, laid off teachers, delayed building maintenance and eliminated art and music programs to make ends meet.

The California State Association of Counties board voted Thursday to drop a competing ballot initiative that would have asked voters to protect about $6 billion in annual state funding. The state sent counties a host of responsibilities last year, most notably incarcerating lower-level offenders. Brown’s tax proposal would protect that money and he asked them to step aside to avoid confusing voters.

(David Siders and Torey Van Oot of The Bee Capitol Bureau contributed to this report.)

Los Angeles Times: California adds patients to health insurance rolls

More than 6,000 with preexisting conditions are getting coverage for medical care under a temporary program.


January 3, 2012

By Anna Gorman

Despite a slow start, California’s push to extend health coverage to those with preexisting medical conditions — a three-year stopgap effort until federal healthcare reform fully kicks in — has enrolled more than 6,000 patients.

California now ranks second only to Pennsylvania with the highest number of enrollees in the temporary federally funded insurance plan. The interim coverage helps people with cancer, heart disease and other long-term disorders pay for doctor visits, hospital stays and medications.

“It was really a lifesaver,” said Catalina Island resident Doug Lord, 64, who has kidney disease and prostate cancer. “No one would insure me.”

Lord, a boat captain and former Avalon city councilman, said he didn’t seek cancer treatment after being diagnosed because he was uninsured and couldn’t afford it. “Feeling like I had nowhere to go and had no one to take care of me was pretty stressful,” he said.

California was the last state to offer the coverage. But the number of applicants jumped after an aggressive marketing campaign and a drop in premiums. Now, with a higher-than-expected influx of federal dollars for 2012, the state plans to continue publicizing the plan. To be eligible, applicants must be U.S. citizens who have been uninsured for six months and have been denied coverage because of a preexisting condition.

“We are going full speed until the federal government tells us to stop,” said Janette Casillas, executive director of California’s Managed Risk Medical Insurance Board.

The program is scheduled to end in January 2014, when insurers will be required to accept patients with previous illnesses without charging them higher rates.

Extending coverage to people with preexisting conditions has not generated the controversy surrounding other parts of the healthcare overhaul, including the requirement that every American get health insurance or pay a fine. Officials fear that if the universal coverage mandate is overturned in court, healthy people may not seek coverage, leaving insurance companies with the most expensive patients, including those with preexisting conditions.

That could present major financial challenges to long-term healthcare reform, officials say. “It is definitely a huge concern,” Casillas said.

The insurance plans for those with preexisting medical problems can be seen as either “a bridge or a Band-Aid to get to the real reform,” said Anthony Wright, executive director of the California consumer group Health Access.

“The big goal is changing the way insurers do business so they can no longer compete by avoiding sick people,” he said. “That said, it is a huge lifeline for those who have it.”

About five years ago, 39-year-old Gabe Chavez lost his job — and his insurance — when the automotive parts store where he worked was sold. He found work elsewhere, but the company didn’t offer insurance. He tried to buy individual health coverage but was denied by several companies because he has diabetes.

“As fast as I put the application in, they turned me down,” said Chavez, who lives in Alameda. While uninsured, he avoided going to the doctor. “It was scary. Diabetes is something you have to constantly watch.”

The state’s insurance plan gives him peace of mind, he said.

Insurers also denied coverage to Beth Levendoski, 57, because she has a hereditary neurological disorder that has led to problems with her spine. For about 10 years, she has paid for doctor’s visits in cash. When she started to get partial paralysis in her legs last year, she had to scrape together more than $70,000 to pay for a surgery.

Levendoski, who was executive director of a nonprofit until last year, said she followed the federal healthcare law in the news and applied for the pre-existing condition plan as soon as it became available. Since getting coverage, she has had two more surgeries and seen improvement in her legs.

The only downside, she said, is the cost. In California, the monthly premiums for preexisting condition coverage range from $119 to $535, in addition to co-pays and deductibles. Premiums were cut last year but are still out of reach for some.

California was allotted $761 million in federal funding for the program and is scheduled to receive $347 of that through 2012.

State officials initially planned to sign up about 23,000 people for the program, but soon realized how sick enrollees were. “The individuals who are coming into the program have more pent-up demand for medical services than what we had budgeted,” Casillas said.

Richard Best, an architect, said he was relieved to qualify. Insurers had been “unanimous in their rejections,” denying him because he had back and knee surgeries and moderately high blood pressure. Since getting onto the state’s plan, Best has undergone sinus surgery and been treated for cataracts.

“Preexisting conditions shouldn’t be a curse,” said Best, 54. “Human nature is that we get worse over time.”