Report Title:

Medicaid Payments to Health Providers

Description:

Requires the department of human services to increase medicaid provider reimbursement payments to more closely approach the actual cost to providers of providing quality health care, and, in calculating reimbursement to providers, to include adjustments for inflation and return on equity to the fullest extent allowed and retain the grandfathered capital component without modification. Appropriates funds for health care payments for aged, blind, and disabled medicaid recipients (SB1240 HD1)

THE SENATE

S.B. NO.

1240

TWENTY-SECOND LEGISLATURE, 2003

S.D. 2

STATE OF HAWAII

H.D. 1


 

A BILL FOR AN ACT

 

RELATING TO MEDICAID.

 

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

SECTION 1. The legislature finds that a financial crisis exists in the State's medicaid payment system to providers of medical care to the poor. The legislature further finds that immediate action is necessary to rescue medicaid providers from financial ruin and to maintain access to essential health care services for Hawaii's people.

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 (CMMS), 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 CMMS for compliance with current federal law and regulations.

Hawaii's medicaid program is administered by the department of human services (DHS), and covers the aged, blind, and disabled population using a fee-for-service payment system. In addition, Hawaii has received a federal waiver to provide medical services through the QUEST program to a separate population that includes families receiving financial assistance under the temporary assistance for needy families program and others. The federal waiver allows Hawaii to contract with health plans to provide a set of medical services for a specified rate per member per month. This managed care approach enables the State to control its costs, by requiring 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.

Medicaid represents a large proportion of revenues to a typical health care facility. Long-term care facilities have been particularly impacted 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, and a similar situation exists in Hawaii. A study of thirty-six states conducted by BDO Seidman found that the average medicaid payment rate did not even cover the actual cost of care. In western states, the shortfall averaged $8.60 per resident per day. Although Hawaii was not one of the states studied, hospitals and long-term care facilities in Hawaii face conditions that are similar to many of those in the study.

The State determines the level of medicaid payments within federal limitations. The state medicaid plan contains a formula for payments to hospitals and long-term care facilities that includes an inflationary factor, known as the data resource index (DRI) McGraw-Hill inflation adjustment factor (as estimated in DRI McGraw-Hill health care costs, that factor in national forecast tables, Health Care Financing Administration's nursing home without walls capital market basket), as well as a factor for a return on equity.

The DHS is preparing to seek approval from the CMMS to make amendments to the State plan which would allow it, in calculating medicaid payments to health care providers, to:

(1) Pay only one-half, rather than all, of the DRI inflation adjustment;

(2) Discontinue the return on equity program; and

(3) Modify the grandfathered capital component.

If effectuated, these proposed amendments would result in medicaid payments to hospitals and nursing homes providing care to the aged, blind, and disabled falling further and further below levels that already are so low that they do not cover the actual costs of care. Eliminating the return on equity program and modifying the grandfathered capital component would further erode health care payment levels.

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, due to changes in the health care environment. For example, managed care has resulted in substantially 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 -- and only temporarily -- as a result of subsequent relief efforts. In light of the current structure of the health care environment, equity dictates that medicaid pay its fair share for health care.

Through the QUEST program, the State negotiates with health plans to provide health care for a specified rate per person per month. Appropriate inflation rates are set through contract negotiation and are built into the calculation of payments to QUEST plans. QUEST capitated reimbursement rates are not fixed for the duration of a contract, but, rather, are recalculated and adjusted annually, based on actuarial data that includes inflation factors, plan encounter data, and national trends in health care costs. Thus, Hawaii's medicaid plan does provide for inflationary adjustments to payments to health care providers under multi-year contracts with a health plan.

The purpose of this Act is to require the department of human services to propose amendments to the State's medicaid plan that would set medicaid payments at a level that more closely approaches the actual cost of providing health care, thus fairly compensating providers and maintaining access to essential health care services for all Hawaii residents.

SECTION 2. (a) The department of human services shall withdraw its proposed amendments to the state medicaid plan that would:

(1) Pay only one-half of the data resource index McGraw-Hill inflation adjustment;

(2) Discontinue the return on equity program; and

(3) Modify the grandfathered capital component in the state medicaid plan,

thereby restoring the full data resource index and return on equity factors to the formula for calculating medicaid payments for the aged, blind, and disabled in the state medicaid plan.

(b) The director of human services shall submit a proposal to the Centers for Medicare and Medicaid Services to amend Hawaii’s medicaid plan to set medicaid payments to health care providers at a level that would, at a minimum, cover the actual costs of quality care provided, including:

(1) Increased payments for mental health services;

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

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

(4) Increased payments for high acuity patients in long-term care facilities 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 submit a report to the legislature no later than twenty days prior to the convening of the regular session of 2004 describing what actions the director has taken to fulfill the requirements of sections 2 and 3, and responses to those actions from the Centers for Medicare and Medicaid Services, health plans, and health care providers, including hospitals and nursing homes providing long-term care to the aged, blind, and disabled.

SECTION 5. There is 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 the same sums or so much thereof as may be necessary for fiscal year 2004-2005 for one-half of the data resource index inflation factor and the return on equity factor components of health care payments for aged, blind, and disabled medicaid recipients:

FY2003-04 FY2004-05

General Funds: $1        $1       

Other Federal Funds: $1        $1       

SECTION 6. The sums appropriated or authorized shall be expended by the department of human services for the purposes of this Act.

SECTION 7. This Act shall take effect on July 1, 2003.