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Friday, January 9, 2015

Swearing in and “State of the Union.”

On Monday, Governor Jerry Brown was sworn in for his unprecedented fourth and final term of office, and delivered his Inaugural address that was essentially his State of the Union address.  The Governor acknowledged the strides made during his first four years in office in, among other things, balancing the budget (“more precariously that I would like”), creating a Rainy Day Fund, reducing unemployment, passing a water bond and creating a fairer system of school funding.

Also over the last several years, a clear priority of the Brown Administration has been the successful implementation of the Affordable Care Act with the realization of the fiscal impact on the state.  Acknowledging that reality, the Governor stated, “Two years ago California embraced the Affordable Care Act, dramatically increasing its health insurance coverage under the Medi-Cal program. The state will enroll 12.2 million people during this new budget year, a more than 50 percent increase. Providing the security of health coverage to so many Californians who need it is the right thing to do. But it isn’t free. Although the federal government will temporarily foot much of the bill, new state costs – now and more so in the future – will run into the billions.”

And finally, a fair amount of time in his speech was spent on his vision for alternative and clean energy for California’s future.  He proposed three ambitious goals to be accomplished within the next 15 years: increase from one-third to 50 percent the state’s electricity derived from renewable sources; reduce today's petroleum use in cars and trucks by up to 50 percent; and, double the efficiency of existing buildings and make heating fuels cleaner.

Concluding his remarks, Governor Brown stated that “… With big and important new programs now launched and the budget carefully balanced, the challenge is to build for the future, not steal from it, to live within our means …”

2015-16 Budget. This morning (Friday), Governor Brown released his initial draft of the 2015-16 State Budget.  Based on projections of a steadily improving economy, the Budget projects that the state will end the next fiscal year with a surplus of $1.5 billion out of a Budget of $164.7 billion (all funds).  In addition, the document foresees that the state will continue to show large surpluses for the next several years, even as the temporary taxes approved by the voters in Proposition 30 begin to expire.

Despite calls from his own party for spending these surpluses on Medi-Cal, home health, health care for immigrants, etc., the Governor continues to urge extreme caution.  He continues to point to the state’s massive unfunded liabilities for state employee and teacher retirements and health care.  This Budget proposes to invest much of the excess funding coming into state coffers to make a sizable down payment on those liabilities.  Other proposed investments include funding for high-speed rail and infrastructure projects.

For the hospital industry, this appears to be a neutral budget, with no major proposals either positive or negative.  Several big picture items, such as coverage for immigrants and the 1115 Waiver, could be important to the industry but are not well fleshed out in this proposal.  It is expected that more detail will be available as the budget process continues.

Major Health Care Proposals in Governor’s Budget Proposal

The following is a summary of the major health care proposals contained in the Governor’s initial budget plan.  A summary of the full budget plan can be found at:

Coverage for Undocumented Immigrants. One of the most interesting policy proposals that health care advocates have been waiting for is the Governor’s reaction to the President’s executive order on immigration.  Because California provides full-scope Medi-Cal to so-called Permanent Resident under Color of Law (PRUCOL) aliens, the executive order could make up to 1.2 million people eligible for Medi-Cal.  The Budget cites this as a possibility but indicates that the state is awaiting further federal guidance.

Medi-Cal provider rates/AB 97 Cuts. The Budget proposes no changes to Medi-Cal provider rates, either positive or negative.  This means that the budget contains no proposed relief for hospitals from the “clawback” faced by distinct part nursing facilities.  It includes $130 million to account for previously exempted providers and drugs, but no new policy changes.

Medi-Cal Section 1115 Waiver.  The Budget assumes funding from the current 1115 Waiver, set to expire in Fall 2015. It also indicates that Finance will update the estimates after the new Waiver is submitted to CMS sometime in the Spring.

High Cost Drugs.  The Budget allocates $300 million to cover the cost of high-cost pharmaceuticals, such as newly-approved Hepatitis C drugs.  This funding is intended to cover costs of these drugs in Medi-Cal, prisons, state hospitals, and AIDS Drug Assistance Program (ADAP).

Coordinated Care Initiative (the Dual Eligibles Program).  When the Legislature originally approved the move of dual eligibles into managed care, they included a “poison pill” allowing the Department of Finance to stop the program if it did not pencil out financially for the state.  For a variety of reasons, it appears that is coming to pass.  For the past several years, the Legislature has papered over the program’s costs by counting revenue from the MCO Tax (see below) as savings from the program.  The document indicates that, without that revenue, the program would have cost the state $398 million last year alone. The Budget indicates that, if the program is not substantially restructured to create savings, the state will cease operation of the program by January 1, 2016.

Managed Care Organization (MCO) Tax.  California’s MCO tax currently offsets more than $1.1 billion in General Fund spending. Recently, however, CMS has informed the state that the tax is out of compliance with recent federal regulations, and will not be renewed after it expires in 2016.  The Budget proposes to restructure the program to comply with the federal regulations, although there is limited detail regarding what that will entail.

Next Steps

Now that the Governor has submitted his initial proposal, the Assembly and Senate Budget Committees will begin their review.  Hearings in the Budget Subcommittees will likely begin later this month or in February.

Since this preliminary analysis is based on a summary of the Governor’s proposed budget, more details may emerge upon review of the more detailed budget document when it becomes publicly available.

Final Rule for Tax-Exempt Hospitals

As reported by the Catholic Health Association of the U.S. (CHAusa), “the Internal Revenue Service has issued its final rules implementing the Affordable Care Act's requirements for tax-exempt hospital organizations. The rules concern community health needs assessments (CHNAs) and implementation strategies, financial assistance and emergency medical care policies, limitations on charges for persons eligible for financial assistance and billing and collection policies. Some changes from the 2013 proposed rules on CHNAs include the addition of an evaluation step in subsequent assessments; requiring that community members be involved in setting priorities as well as assessments; and adding examples of needs that include reference to social and environmental determinants of health.            
Financial assistance and billing rules include requiring translations of financial assistance policies must be available in languages spoken by limited English proficient groups that constitute the lesser of 1,000 persons or 5 percent of the community served (as opposed to 10%) to persons; requiring certain notifications only for persons the hospital intends to engage in extraordinary collection actions; and adding to the list of these actions deferring or denying or requiring prepayment of medically necessary care because of an individual's nonpayment of previous bills.”  Cick here for a summary of the final rule prepared by CHAusa.

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