SB417.DOC

SECTION 1. Hawaii's health care system consists of a myriad of services that must be coordinated and integrated to ensure access to quality care at the appropriate level for all of Hawaii's residents. A single user of health care often accesses different providers that deliver different products and services, and may transition from one level of care to another over a period of time.

Acute care hospitals deliver care to the most seriously ill patients. As such, the cost of acute hospital care is very high due to high staffing costs, the high costs of technology that permeate hospitals to pay for equipment and supplies, and the high costs of medication, regulatory, and quality requirements. Patients who receive care at hospitals and recover enough of their health so that they no longer require hospitalization, but are still in need of services, should be transferred out of the hospital to a provider that can appropriately and safely care for their needs. Such a transfer supports an improved quality of life for the patient and sustains the integrity of the acute care system by creating availability for others who may require hospitalization. This balanced flow of patient movement matches the appropriate provider to the needs of the patient. In doing so, it better manages the financing of health care.

The determination of an appropriate level of care is based on the patient's condition and input from a multi-disciplinary care team. The provision of long-term care, either in a facility or in a home- and community-based setting, is far less costly than hospital care.

Unfortunately, due to unique and unusual circumstances, Hawaii has a shortage of beds in nursing facilities relative to its population. Most of Hawaii's long-term care facilities, including skilled nursing facilities, assisted living facilities, adult residential care homes, and foster family homes, are full nearly all of the time. Placement in long-term care is especially difficult when a patient has a medically complex condition that demands resources that are not available at many long-term care facilities in Hawaii. As a result, many acute care hospital patients who are ready for long-term care cannot be discharged and must wait in the acute care hospital bed until appropriate space becomes available.

The shortage of long-term care beds is an undesirable situation from three perspectives. First, the quality of life of the patient obliged to remain in an acute care hospital is diminished. Second, a patient in an acute care hospital who is on a waitlist for long-term care occupies a bed that may be needed by someone else with an acute illness or injury. Lastly, hospital care is very expensive, so the waitlisted patient contributes to higher costs in an acute care hospital.

Hawaii's medicaid program can be modified to facilitate the flow of patients from acute care hospitals to long-term care facilities. When a medicaid-eligible patient is treated by an acute care hospital, medicaid pays a rate based upon the level of care needed by the patient. When the patient is well enough to be transferred to long-term care, the medicaid payment is reduced to a rate that is twenty to thirty per cent of the actual cost of acute care hospitalization. If the hospital is not able to transfer the patient to long-term care, the hospital must bear the financial burden of the reduced medicaid payments. In addition, the inability to transfer a patient who is deemed ready for discharge by a physician means that the patient on a waitlist utilizes an acute care bed that may be needed by other, more acutely ill patients. Thus, there is an opportunity cost to the hospital and the patients.

At any particular time, a total of about two hundred patients in Hawaii's hospitals are waiting to be transferred to long-term care. Patients with certain conditions have been on a waitlist for weeks, months, or even years. The total loss to hospitals due to patients on a waitlist was estimated to be $73,000,000 in 2008.

A significant part of that loss is due to underpayment by medicaid. The underpayment is unfair to acute care hospitals because medicaid is, in effect, a public-private partnership. The public sector provides the funding, and the private sector provides the services. Unfortunately, in the majority of situations, medicaid reimbursements seldom cover the actual cost of the services provided. As a result of the underpayment, acute care hospitals and long-term care facilities are weakened financially, and the stability of Hawaii's entire health care system is compromised.

In the past, acute care hospitals were able to absorb medicaid losses since payments from commercial and other payers helped to offset the under-funded costs of care for medicaid patients. Over time, the cost of healthcare has increased at a faster rate than increases in payments from all payers. In addition, significant enhancements in medical technology over the past several years have placed a greater expectation on acute care hospitals to invest in medical equipment and information technology. As a result, acute care hospitals are no longer able to cover the underpaid cost of caring for medicaid patients and adequately invest in medical technology.

The result is that many acute care hospitals are on the verge of financial failure. For example, Kahuku hospital would have ceased operations due to bankruptcy if it were not annexed by the Hawaii health systems corporation, which is subsidized by the State. One of the major reasons given for Kahuku hospital's financial troubles was underpayment by medicaid.

In addition, medicaid payments for long-term care must be addressed, with payments for individuals with medically complex conditions, such as bariatric patients and severely obese patients, needing immediate attention. These payments should be cost-based since the current system of acuity-based reimbursement does not effectively address these types of patients.

The purpose of this Act is to provide fair compensation to acute care hospitals for the service they provide to medicaid patients who have been treated for acute illnesses and injuries and who have recovered sufficiently so that they may be transferred to long-term care, but for whom long-term care is not available. In addition, this Act provides fair compensation to long-term care facilities for patients in acute hospitals with medically complex conditions when their level of care changes from acute to long-term care.

SECTION 2. Chapter 346, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§346‑ Medicaid reimbursements. (a) Medicaid reimbursements to hospitals for patients occupying acute-licensed beds who are on a waitlist for long-term care shall be equal to the acute medical services payment rate.

(b) Medicaid reimbursements to facilities with long-term care beds for patients with medically complex conditions who, prior to admission to the facility were receiving acute care services in an acute care hospital, shall be equal to the state reimbursement rate for subacute care.

(c)_ As used in this section:

"Medically complex condition" means a combination of chronic physical conditions, illnesses, or other medically related factors that significantly impact an individual's health and manner of living and cause reliance upon technological, pharmacological, and other therapeutic interventions to sustain life.

"Subacute care" means a level of care that is needed by a patient not requiring acute care, but who needs more intensive skilled nursing care than is provided to the majority of patients in a skilled nursing facility."

SECTION 3. Section 346D-1.5, Hawaii Revised Statutes, is amended to read as follows:

"§346D-1.5 Medicaid reimbursement equity. Not later than July 1, 2008, there shall be no distinction between hospital-based and nonhospital-based reimbursement rates for institutionalized long-term care under medicaid. Reimbursement for institutionalized intermediate care facilities and institutionalized skilled nursing facilities shall be based solely on the level of care rather than the location. This section shall not apply to critical access hospitals[.] or to reimbursements made in accordance with section 346‑ ."

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $6,200,000 or so much thereof as may be necessary for fiscal year 2009-2010 for increased medicaid reimbursement in accordance with this Act.

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

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 2009.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	417
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII