Report Title:

Medicaid

 

Description:

Specifies criteria that sets medicaid payments at a level that fairly compensates providers.

HOUSE OF REPRESENTATIVES

H.B. NO.

670

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to medicaid.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Medicaid was established in 1965 as a jointly funded federal and state program providing medical assistance to qualified low-income people. At the federal level, medicaid is administered by the Centers for Medicare and Medicaid Services, an agency that is part of the U.S. Department of Health and Human Services. Within a broad legal framework, each state designs and administers its own medicaid program under a state plan approved by the Centers for Medicare and Medicaid Services for compliance with current law and regulations.

At the state level, Hawaii's medicaid program is administered by the department of human services. Hawaii's medicaid plan covers the aged, blind, and disabled population, using a fee-for-service payment system. In addition, Hawaii has received a Centers for Medicare and Medicaid Services waiver to provide medical services through the QUEST program to a separate population that includes families receiving financial assistance through the Temporary Assistance for Needy Families program and others. The Centers for Medicare and Medicaid Services waiver enables Hawaii to contract with health plans to provide a set of medical services for a specific rate per member per month. This managed care approach enables the State to control its costs. In fact, one of the requirements of the Centers for Medicare and Medicaid Services waiver is that Hawaii provide services through QUEST at a funding level that is no more than what the cost would be under a fee-for-service system.

Other states have also used managed care and other methods to control medicaid payments to providers of health care in an effort to control their overall spending. However, since medicaid represents such a large proportion of revenues to a typical health care facility, the overall financing of health care is affected. Both hospitals and long-term care facilities already provide services for which they are not compensated because, whether public or private, they have a public purpose and are committed to maintaining and improving community health. In many cases, these facilities provide care to those who do not have the means to pay for it. A recent study shows that in the year 2000, hospitals and long-term care facilities in Hawaii provided a total of more than $70,000,000 in health care for which they were not compensated. Furthermore, many facilities sponsor health programs that benefit the community; however, any revenues that may be generated from the programs far from cover costs. In addition, some facilities are not fully compensated for sponsoring programs to educate doctors and nurses.

Long-term care facilities have been particularly affected by low medicaid payments because of the typically high proportion of medicaid patients in these facilities. Nationally, medicaid pays for about seventy per cent of the residents in long-term care facilities. In Hawaii, medicaid pays for about seventy-five per cent of the total payments for care in long-term care facilities. Experiences on the U.S. mainland have shown what can happen if medicaid payments are too low. In Florida nearly one-fifth of the nursing home beds are owned by companies that are in bankruptcy proceedings. In Washington, nearly one-fifth of the nursing homes are either in bankruptcy or have recently shut down. In Texas, more than one-fifth of the nursing homes are in bankruptcy. Medicaid payments that do not cover the actual costs of care, along with low medicare payments, have been cited as a major reason for bankruptcies of long-term care facilities throughout the nation.

In large measure, the State determines the level of medicaid payments. However, the department of human services has decided not to fund the State's full share of medicaid according to its own state medicaid plan. The state medicaid plan contains a formula for payments to hospitals and long-term care facilities that include an inflationary factor, known as the Data Resources Incorporated Index (DRI Index), which is published by DRI/McGraw-Hill in the publication Health Care Costs, as well as a factor for a return on equity. The department of human services submitted a proposal to the Centers for Medicare and Medicaid Services to amend the state medicaid plan to provide only one-half of the DRI Index and none of the return on equity. With the passage of time, the proposed amendment would result in payments falling further and further behind equitable levels. Although the Centers for Medicare and Medicaid Services had not made a decision on the proposed amendment, the department of human services requested funding for only one-half of the DRI Index and none of the return on equity for fiscal biennium 2001-2003. The shortage has been estimated at $6,000,000 per year, and the effect would be a reduction in payments to all hospitals and nursing homes that provide care to the aged, blind, and disabled.

This reduction in medicaid payments would occur at a time when many of Hawaii's hospitals and long-term care facilities are struggling financially. In an effort to reduce losses, health care facilities have been laying off workers, freezing vacant positions, and eliminating programs. For example, Queen's Medical Center alone has laid off nearly two hundred employees and closed its cardiac rehabilitation unit. Queen's Medical Center was planning to close its dental clinic, which fortunately will now be kept open because of financial support promised by the State. These cost-cutting measures have been attributed to lower medicaid payments. A close examination of health care in Hawaii reveals that its health care infrastructure is at risk, and in turn, so is Hawaii's reputation as the "Health State."

The legislature finds that the financing of health care becomes problematic whenever payments are lower than the actual costs of providing the care. In the past, providers have been able to shift much of the burden of paying for medicaid patients to other sources of revenue. However, the ability to "cost shift" has become increasingly difficult because of changes in the health care environment. For example, the increasing popularity of managed care has resulted in significantly reduced payments from private payers. In addition, medicare payments for older Americans have been reduced significantly as a result of the Balanced Budget Act of 1997, and these payments have been only partially restored as a result of subsequent relief efforts. In recognition of the current structure of the health care environment, equity dictates that medicaid pay its fair share for health care.

Relatedly, the department of human services decided not to allow payment rates to be increased, even though actual costs may be increased due to hurricanes or other acts of God, changes in the safety code, or changes in the licensure law. Currently, the state medicaid plan includes a procedure for a provider to request rate reconsideration for these and other reasons. However, the department of human services submitted a proposal to the Centers for Medicare and Medicaid Services to amend the state Medicaid plan by eliminating rate reconsideration from the plan. Without rate reconsideration, some costs may not be considered in the determination of medicaid payments.

Furthermore, the department of human services proposal to amend the state medicaid plan also includes a modification of the "grandfathered capital component" used to determine medicaid payments to new providers or providers with new beds. This modification would result in reduced payments to these facilities for services to their aged, blind, and disabled medicaid participants.

As noted earlier, through the QUEST program, the State negotiates with health plans to provide health care for a specified rate per person per month. It has been the practice to hold the per capita rate the same through the several years of a contract with a health plan without inflationary adjustments, even though the inflation for health care is typically higher than the inflation for the economy in general. Hawaii's medicaid program should acknowledge the reality of inflation and adjust payments accordingly. In addition, Hawaii has continually reduced its medicaid formulary in an effort to control costs. However, another effect of a reduced formulary is that the quality of care has been reduced since the options available for treatment are also reduced.

Adjustments to the QUEST and the aged, blind, and disabled program should be made to reflect the realities of the health care environment. If these adjustments are not made, health care in Hawaii will be jeopardized, and the health of the people of Hawaii will be placed at risk.

The purpose of this Act is to set medicaid payments at a level that fairly compensates providers, so that payments are at least sufficient to cover the actual costs of quality care offered by providers who successfully compete in the economic arena.

SECTION 2. The director of human services shall:

(1) Withdraw the proposal to eliminate one-half of the DRI Index and the return on equity, thereby restoring the full DRI Index and return on equity to the formula for calculating medicaid payments for the aged, blind, and disabled in the state medicaid plan;

(2) Withdraw the proposal to eliminate rate reconsideration from the state medicaid plan;

(3) Withdraw the proposal to modify the grandfathered capital component in the state medicaid plan; and

(4) Submit a proposal to the Centers for Medicare and Medicaid Services to amend Hawaii's medicaid plan to set payments at a level to at least cover the actual costs of quality care offered by those who successfully compete in the economic arena, including:

(A) An increase in payments for mental health services;

(B) Payments for services provided by certified registered nurse anesthetists, physicians' assistants, and nurse practitioners;

(C) Increased payments for long-term care services in general; and

(D) Increased payments for high acuity patients in long-term care in particular.

SECTION 3. In negotiating future contracts with health plans to provide health care under QUEST, the director of human services shall propose annual inflationary adjustments to the per capita payments based on a factor that is generally accepted nationally.

SECTION 4. The director of human services shall not allow any item to be removed from the QUEST formulary unless it has been shown to be ineffective.

SECTION 5. The director of human services shall submit a report to the legislature no later than twenty days prior to the convening of the regular session of 2004 describing the actions the director has taken to fulfill the requirements of sections 2, 3, and 4, and responses made by the Centers for Medicare and Medicaid Services, health plans, and providers.

SECTION 6. There are appropriated or authorized from the sources of funding indicated below the following sums or so much thereof as may be necessary for fiscal year 2003-2004 and fiscal year 2004-2005 to be used for one-half of the DRI Index inflation factor and for the return on equity for health care payments for aged, blind, and disabled medicaid recipients:

FY 2003-2004 FY 2004-2005

General funds: $ 1 $ 1

Other federal funds: $ 1 $ 1

SECTION 7. There are appropriated or authorized from the sources of funding indicated below the following sums or so much thereof as may be necessary for fiscal year 2003-2004 and fiscal year 2004-2005 to be used to fund rate reconsideration for health care payments for aged, blind, and disabled medicaid recipients:

FY 2003-2004 FY 2004-2005

General funds: $ 1 $ 1

Other federal funds: $ 1 $ 1

SECTION 8. There are appropriated or authorized from the sources of funding indicated below the following sums or so much thereof as may be necessary for fiscal year 2003-2004 and fiscal year 2004-2005 to be used for the grandfathered capital component for health care payments for aged, blind, and disabled medicaid recipients:

FY 2003-2004 FY 2004-2005

General funds: $ 1 $ 1

Other federal funds: $ 1 $ 1

SECTION 9. There are appropriated or authorized from the sources of funding indicated below the following sums or so much thereof as may be necessary for fiscal year 2003-2004 and fiscal year 2004-2005 to be used for an inflationary factor for health care payments for the QUEST program:

FY 2003-2004 FY 2004-2005

General funds: $ 1 $ 1

Other federal funds: $ 1 $ 1

SECTION 10. The sums appropriated shall be expended by the department of human services for the purposes of this Act.

SECTION 11. This Act shall take effect on July 1, 2003.

INTRODUCED BY:

_____________________________