Report Title:

Medicaid

Description:

Authorizes Medicaid payments to be set at a level that more fairly compensates providers.

THE SENATE

S.B. NO.

1428

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. 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, an agency that is part of the United States 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 federal law and regulations.

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 federal waiver for providing 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 federal waiver allows 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 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, and 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 by BDO Seidman found that the average medicaid 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, it faces 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 DRI McGraw-Hill inflation factor (as estimated in DRI McGraw-Hill Health Care Costs that factor in National Forecast Tables, Health Care Financing Administration1s Nursing Home Without Capital Market Basket), as well as a factor for a return on equity.

The department of human services has made efforts to amend the state medicaid plan to provide only one-half of the DRI McGraw Hill inflation factor, and none for return on equity. The department of human services submitted a proposed Medicaid plan amendment to make these reductions to Centers for Medicare and Medicaid Services, but subsequently withdrew it for technical reasons. Still, the department of human services is planning to make the reductions. If effected, the reductions would result in payments falling further and further behind levels that already are so low that they do not cover the actual costs of care to all hospitals and nursing homes that provide care to the aged, blind, and disabled population. The department of human services has also proposed to eliminate rate reconsideration and the "grandfathered capital component" from the state medicaid plan, which would further erode health care payments.

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, 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 recognition 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 at 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 rate for health care is typically higher than the inflation rate for the economy in general. Hawaii's medicaid program should acknowledge the reality of inflation and adjust payments accordingly.

The purpose of this Act is to set medicaid payments at a level that more fairly compensates providers, by bringing payments closer to a level that covers the actual costs of quality care offered by providers who must survive financially to continue to treat medicaid patients.

SECTION 2. The department of human services shall withdraw:

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

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

(3) The proposal to modify the grandfathered capital component in the state medicaid plan.

Furthermore, 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 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:

(1) An increase in 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 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 made by the Center for Medicare and Medicaid Services, health plans, and providers.

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 the fiscal years 2003-2004 and 2004-2005, to be used for one-half of the DRI inflation factor and for the return on equity for health care payments for aged, blind, and disabled medicaid recipients:

FY 2003-04 FY 2004-05

General Funds: $ $

Other Federal Funds: $ $

SECTION 6. There is appropriated or authorized from the sources of funding indicated below the following sums, or so much thereof as may be necessary, for the fiscal years 2003-2004 and 2004-2005, to be used to fund rate reconsideration for health care payments for aged, blind, and disabled medicaid recipients:

FY 2003-04 FY 2004-05

General Funds: $ $

Other Federal Funds: $ $

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

FY 2003-04 FY 2004-05

General Funds: $ $

Other Federal Funds: $ $

SECTION 8. There is appropriated or authorized from the sources of funding indicated below the following sums, or so much thereof as may be necessary, for the fiscal years 2003-2004 and 2004-2005, to be used for an inflationary factor for health care payments for the QUEST program:

FY 2003-04 FY 2004-05

General Funds: $ $

Other Federal Funds: $ $

SECTION 9. The sums appropriated shall be expended by the department of human services for the purposes of this Act.

SECTION 10. This Act shall take effect on July 1, 2003.

INTRODUCED BY:

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