Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Human Services, to which was referred S.B. No. 1240 entitled:

begs leave to report as follows:

The purpose of this measure is to set Medicaid payments at a level that more fairly compensates providers of medical services, by allowing providers to be compensated at a level that more closely approaches the actual costs of providing quality health services.

Testimony in support of this measure was submitted by the Hawaii Medical Service Association; the Healthcare Association of Hawaii; the Hawaii Long-Term Care Association; and a concerned citizen. Testimony opposing this measure was submitted by the Department of Human Services (DHS).

Your Committee finds that the insufficient reimbursement payments provided to hospitals and physicians by government payers like Medicaid and Medicare have become a serious concern with potential public health implications. Health care facilities and providers are experiencing depressed revenues and rising costs, in part due to decreases in Medicare and Medicaid funding, reduced health care payments resulting from managed care, and the rising costs of high technology medical equipment and prescription drugs, among other things. According to the Healthcare Association of Hawaii, health care facilities in Hawaii incurred more than $91 million in bad debt and charity care costs in 2002 alone.

Your Committee further finds that, in the past, health care facilities could cover the costs of providing quality care to Medicaid and Medicare recipients through "cost shifting". Health care facilities would receive payments from certain patient groups, that more than covered the costs of providing services to them. The surplus of these payments could then be "shifted" to groups that did not pay enough to cover actual costs, thereby covering all costs. Cost-shifting has become increasingly difficult, however, due to recent changes in the healthcare environment.

Increasing costs, unavailability of cost-shifting, and the low level of reimbursement payments under Medicaid and QUEST programs may limit the ability of hospitals, physicians, and other health care facilities and providers to continue to provide services to low-income individuals covered under the QUEST or Medicaid programs. As a result, your Committee finds that it is important for the State to take some action at this time, in order to maintain access to quality health care for those Hawaii residents covered by Medicaid and QUEST programs.

Accordingly, your Committee has amended this measure by:

As affirmed by the record of votes of the members of your Committee on Human Services that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1240, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1240, S.D. 1, and be referred to the Committee on Ways and Means.