HB2275 SD2.DOC

SECTION 1. Hospitals in the State face major financial challenges in providing quality health care for Hawaii residents. These challenges are largely the result of payments for care of medicaid enrollees that do not cover the actual costs of care. The legislature finds that federal funding to help financially sustain Hawaii's hospitals may be accessed through a provider fee.

Provider fees are used in forty-seven states and the District of Columbia as a means of drawing down federal funds to sustain state medicaid programs due to rising state budget deficits, increasing health care costs, and expanding medicaid rolls. Implementation of a provider fee in Hawaii would help stabilize declining medicaid payments to facilities and slow the erosion of access to care for beneficiaries served by the program.

Medicaid is jointly financed by the federal and state governments, but by statutory formula, the federal government pays between fifty per cent and seventy-four per cent of medicaid costs incurred by states for care delivered to their medicaid beneficiaries. Federal medical assistance percentages vary by state, with states that have lower per capita incomes receiving higher federal matching rates. Under federal rules, the state share must be paid through public funds that are not federal funds.

Provider fees, which are collected from specific categories of health care items and services, may be assessed on nineteen different classes of health care services, including inpatient and outpatient hospital and nursing facility services. However, there are limitations on the way provider fees may be structured. The Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991, P.L. 102-234, passed by Congress in 1991, imposes the following requirements:

(1) Broad-based. To be considered broad-based, a provider fee must be imposed on all health care items or services furnished by all non-federal, non-public providers in the class in the State. Provider fee programs may exclude public facilities without violating federal law;

(2) Uniformly imposed. In general, a provider fee is uniformly imposed if it is the same amount or rate for each provider in the class; and

(3) Hold harmless prohibition. States may not hold providers harmless. A provider fee is considered to hold the provider harmless if the providers paying the fee receive, directly or indirectly, a non-medicaid payment from the state or any offset or waiver that guarantees to hold the provider harmless for all or a portion of the fee. A provider fee is also considered to hold the provider harmless if the medicaid payments to the provider vary based only on the amount of the fees paid by the provider.

The maximum provider fee a state may impose is currently six per cent of net patient revenue. A number of proposals have been made, but not implemented, to eliminate medicaid provider fee programs to reduce the federal deficit. However, because provider fees are used by so many states, many of those who are knowledgeable about this subject view elimination of provider fees as unlikely due to their strong political support. A more realistic expectation is a reduction of the provider fee maximum, as proposed by President Barack Obama's fiscal year 2012 budget, which would reduce the maximum to three and one-half per cent in 2017. While the level of tax collection may be reduced several years in the future, this proposal recognizes that provider fees are essential for most states to maintain a stable, functioning medicaid program.

In Hawaii, a provider fee would increase medicaid payments at a time when constraints on the State's budget have forced a reduction in payments and optional benefits. The additional federal funds obtained via the fee program would reduce the amount of losses incurred by hospitals. As such, the provider fee would help preserve access to health care for the medicaid population and sustain the State's entire health care system.

The purpose of this Act is to ensure access to health care for medicaid recipients by establishing a hospital sustainability fee assessed on net inpatient hospital service revenue and by establishing a hospital sustainability program special fund to receive moneys from the hospital sustainability fee to receive federal medicaid matching funds for direct hospital payments made under the private hospital uncompensated care pool established under the authority of a federally-approved amendment to the QUEST expanded medicaid section 1115 demonstration waiver.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

HOSPITAL SUSTAINABILITY PROGRAM

§ -1 Title. This chapter shall be known and may be cited as the "Hospital Sustainability Program Act".

§ -2 Findings and declaration of necessity. It is the intent of the legislature to encourage the drawdown of federal medicaid funds by establishing a fund within the state treasury to receive revenue from the imposition of a hospital sustainability fee and to use the revenue to receive federal medicaid matching funds under the authority of a federally-approved amendment to the QUEST expanded medicaid Section 1115 demonstration waiver.

§ -3 Definitions. As used in this chapter:

"Department" means the department of human services.

"Fiscal year" means a twelve-month period from July 1 of a particular calendar year to June 30 of the following calendar year, inclusive.

"Hospital" means any facility licensed pursuant to section 11-93, Hawaii Administrative Rules.

"Inpatient care" means the care of patients whose conditions require admission to a hospital.

"Net patient service revenue" means inpatient hospital gross revenue divided by total gross revenue, as derived from worksheet G-2 of each hospital's medicare cost report, multiplied by the net patient revenue, as derived from worksheet G-3 of each hospital's medicare cost report. The net inpatient hospital service revenue shall be derived from each hospital's cost report ending between the period of July 1, 2009, to June 30, 2010. If a hospital is new or did not file a fiscal year 2010 medicare cost report, the department shall collect the hospital's net inpatient hospital service revenue from the most recent period available.

"Private hospital" means those hospitals currently operating and named in attachment "A" of the QUEST expanded medicaid Section 1115 demonstration waiver.

"Section 1115 waiver" means the QUEST expanded medicaid section 1115 demonstration waiver (Number 11-W-00001/9).

§ -4 Hospital sustainability program special fund. (a) There is created in the state treasury the hospital sustainability program special fund into which shall be deposited all moneys collected under this chapter.

(b) Moneys in the hospital sustainability program special fund shall consist of:

(1) All revenue received by the department from the hospital sustainability fee;

(2) Any interest or penalties levied in conjunction with the administration of this chapter; and

(3) Any appropriations, federal funds, donations, gifts, or moneys from any other sources.

(d) Revenue from the hospital sustainability fee shall be used exclusively as follows:

(1) To make direct payments to private hospitals for the uncompensated care costs of serving medicaid and uninsured individuals as authorized under the section 1115 waiver amendment, effective the later of July 1, 2012, or the date of federal approval of the section 1115 waiver amendment, if necessary, to establish the private hospital uncompensated care pool; and

(2) No more than five per cent for other expenses incurred in the medicaid program and to pay the expenses of the State associated with the administration of this chapter.

(e) All moneys remaining in the special fund on the last day of the fiscal year shall be distributed to hospitals within thirty days in the same proportions as received from the hospitals.

§ -5 Hospital sustainability fee. (a) Effective the later of July 1, 2012, or the date of federal approval of the Section 1115 waiver amendment establishing the private hospital uncompensated care pool, the department shall charge and collect a provider fee, to be known as the hospital sustainability fee, on inpatient services provided by hospitals.

(b) The hospital sustainability fee shall be based on the inpatient hospital service revenue of all hospitals that are subject to the hospital sustainability fee, as derived from each hospital's cost report ending between the period of July 1, 2009, to June 30, 2010.

(c) The hospital sustainability fee shall be assessed on all private hospitals at a rate of 5.50 per cent of net inpatient hospital service revenue, with the following exceptions:

(1) Trauma hospitals shall pay 3.85 per cent of net inpatient hospital revenue;

(2) Teaching hospitals that are also not trauma hospitals shall pay 2.31 per cent of net inpatient hospital revenue; and

(3) Children's hospitals, rehabilitation hospitals, psychiatric hospitals, public hospitals, and federal hospitals shall be excluded from the hospital sustainability fee.

The department, with agreement by the hospital trade association located in Hawaii, may modify the structure of the hospital sustainability fee if such modification is necessary to obtain federal uniformity waiver approval consistent with the requirements of 42 Code of Federal Regulations section 433.68(e)(2).

§ -6 Hospital sustainability fee assessments. (a) Hospitals shall pay the hospital sustainability fee to the department in accordance with this chapter. The hospital sustainability fee in section -5 shall be divided and paid in four equal installments on a quarterly basis.

(b) The department shall collect, and each hospital shall pay, the hospital sustainability fee on a quarterly basis subject to the terms of this subsection. The fee shall be due on the fifteenth day after the end of each calendar quarter.

(c) If federal approval of the Section 1115 waiver amendment authorizing the private hospital uncompensated care pool and the hospital sustainability fee uniformity waiver occurs later than forty-five days from the beginning of a calendar quarter, the initial fee shall be due within sixty days of the federal approval. Each subsequent quarterly fee shall be due on the fifteenth day after the end of each subsequent calendar quarter.

§ -7 Federal approval. The department shall seek a waiver of the uniformity waiver requirements from the federal Centers for Medicare and Medicaid Services for the hospital sustainability fee, as provided by 42 Code of Federal Regulations section 433.68(e)(2). The department may also seek an amendment to the Section 1115 waiver to establish the private hospital uncompensated care pool, if necessary.

§ -8 Multifacility locations. If an entity conducts, operates, or maintains more than one hospital licensed by the department of health, the entity shall pay the hospital sustainability fee for each hospital separately.

§ -9 Penalties for failure to pay the hospital sustainability fee. (a) If a hospital fails to pay the full amount of the hospital sustainability fee when due, there shall be added to the fee, unless waived by the department for reasonable cause, a penalty equal to two per cent of the fee that was not paid when due. Any subsequent payments shall be credited first to unpaid fee amounts beginning with the most delinquent installment rather than to penalty or interest amounts.

(b) In addition to the penalty imposed by subsection (a), the department may seek any of the following remedies for the failure of any hospital to pay its fee when due:

(1) Withholding any medical assistance reimbursement payments until such time as the fee amount is paid in full;

(2) Suspension or revocation of the hospital license; or

(3) Development of a plan that requires the hospital to pay any delinquent fee in installments.

§ -10 Private hospital uncompensated care pool. (a) The department shall use revenue from the hospital sustainability fee and federal matching funds to reimburse private hospitals in an amount equal to $72,000,000 annually for the uncompensated care costs incurred by private hospitals for serving medicaid and uninsured individuals.

(b) The department shall make quarterly uncompensated care pool payments directly to private hospitals. The department shall make quarterly uncompensated care pool payments within eighteen days after the end of each calendar quarter. Each eligible hospital shall receive its proportional share of the uncompensated care pool based on the estimated fiscal year 2013 uncompensated care costs as derived from the actual uncompensated care in 2010, not otherwise adjusted for growth to such costs.

(c) To the extent the program is not effective for the entire year, the sustainability fee, the state medicaid expenses and administrative fee, and the corresponding uncompensated care pool payments shall be based on the proportion of the fiscal year the program is in effect.

(d) If federal approval of the Section 1115 waiver amendment authorizing the private hospital uncompensated care pool and the hospital sustainability fee uniformity waiver occurs later than forty-five days from the beginning of a calendar quarter, the department shall make the initial quarterly payment within three business days of the department's receipt of the first quarterly hospital sustainability fee paid by private hospitals as described in section -6. The department shall make each subsequent quarterly uncompensated care pool payment within eighteen days after the end of each subsequent calendar quarter.

§ -11 Termination. (a) Collection of the hospital sustainability fee established by section -5 shall be discontinued if:

(1) The hospital sustainability fee uniformity waiver or the Section 1115 waiver amendment establishing the private hospital uncompensated care pool is not approved by the federal Centers for Medicare and Medicaid Services;

(2) The department reduces funding for hospital services below the state appropriation in effect on June 30, 2012;

(3) The department or any other state agency expends any portion of the funds in the hospital sustainability program special fund for any purpose other than the uses permitted by this chapter; or

(4) Federal financial participation to match the revenue from the hospital sustainability fee becomes unavailable under federal law; provided that the department shall terminate the assessment of the hospital sustainability fee beginning on the date the federal statutory, regulatory, or interpretive change takes effect.

(b) If collection of the hospital sustainability fee is discontinued as provided in this section, all moneys in the hospital sustainability program special fund shall be distributed among the hospitals within thirty days in the same proportions as received from the hospitals.

§ -12 Severability. If any provision of this chapter or the application thereof to any person or circumstances is held invalid, the invalidity shall not affect other provisions or applications of the chapter that can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable."

SECTION 3. This Act shall take effect on July 1, 2012, and shall be repealed on June 30, 2013.

HOUSE OF REPRESENTATIVES	H.B. NO.	2275
TWENTY-SIXTH LEGISLATURE, 2012		H.D. 2
STATE OF HAWAII		S.D. 2