​​Update to Medi-Cal Fee-For-Service and Non-Medi-Cal Program Provider Payment Reductions - April 6, 2009, Court Action

This notice provides updated information about changes to provider payments under the Medi-Cal fee-for-service (FFS) program for certain services.  Assembly Bill 1183  added to state law Welfare and Institutions (W&I) Code Section 14105.191, requiring provider payments otherwise payable to be reduced by 1 percent or 5 percent, depending upon the provider type, for dates of service on or after March 1, 2009.  These reductions replaced the 10 percent provider payment reductions for these services previously mandated by W&I Code Section 14105.19, which were effective from July 1, 2008, through  February 28, 2009, except as to payments for non-contract hospital inpatient services, which are still reduced by 10 percent pursuant to W&I Code Section 14166.245.  

Prior to AB 1183, Assembly Bill 5 enacted into state law W&I Code Section 14166.245, which provides that interim payments for non-contract hospital inpatient services shall be reduced by 10 percent for dates of service on or after July 1, 2008.  AB 1183 amended section 14166.245 to provide that some hospitals will be paid an interim per diem payment equal to the applicable regional average per diem contract rate negotiated by the California Medical Assistance Commission reduced by 5 percent (the CMAC-5 percent rate), if that rate is lower than the 10 percent reduced interim payment otherwise payable pursuant to AB 5.   Small and rural hospitals are exempt from all payment reductions, effective November 1, 2008.  AB 5 also provides that final reimbursement payable for non-contract hospital inpatient services will be limited to 90 percent of a hospital’s audited allowable daily cost.  AB 1183 enacted a provision that provides that for some hospitals, final reimbursement will be limited to the applicable CMAC-5 percent rate if lower than 90 percent of a hospital’s audited allowable daily costs. 

On March 9, 2009, the United States District Court for the Central District denied the plaintiffs’ motion for a preliminary injunction concerning the AB 1183 enacted payment reductions for hospital services.  On April 6, 2009, the United States Court of Appeals issued an order staying the district court’s ruling, thus effectively requiring the Department of Health Care Services (DHCS) to suspend the payment reductions enacted by AB 1183 for hospital outpatient services, hospital-based subacute care, hospital-based nursing facility (level B) services and non-contract hospital inpatient services for dates of service on or after April 6, 2009.  The court ordered  DHCS to suspend these payment reductions pending further litigation of the matter in the Court of Appeals. 

The April 6, 2009, court order does not apply to the non-Medi-Cal programs listed below:

• California Children’s Services (CCS)
• CCS/Healthy Families
• Genetically Handicapped Persons Program
• State-Only Family Planning Program
• State-Only Child Health and Disability Prevention Program

DHCS ACTIONS TO COMPLY WITH THE LATEST COURT ORDER

DHCS has made the necessary changes to the claims processing system to suspend the AB 1183 payment reductions for hospital outpatient services and hospital-based subacute care services for dates of service on or after April 6, 2009.  The programming changes necessary to comply with the court order, with respect to both hospital-based nursing facility (level B) services and non-contract hospital inpatient services, are much more complicated and time-consuming.  It is estimated that it will take at least two weeks to complete the system changes required to suspend the AB 1183 payment reduction of 5 percent for hospital-based nursing facility (level B) services and the CMAC-5 percent rate being paid to some non-contract hospitals for dates of service on or after April 6, 2009.  Once these changes have been made to suspend those payment reductions on prospectively processed claims, it will then take approximately one month for DHCS to complete necessary additional system programming changes to pay additional money that may be owed to some hospitals based on the suspension of the 5 percent reduction for hospital-based nursing facility (level B) services and the CMAC-5 percent rate for non-contract hospital inpatient services for dates of service on or after April 6, 2009.

The most recent court order does not apply to the 10 percent reduction for non-contract hospital inpatient services, which was enacted by AB 5.  Thus, interim payments for non-contract hospital inpatient services will continue to be reduced by 10 percent in accordance with AB 5.  Tentative reimbursement cost settlements for non-contract hospital inpatient services impacted by this latest court order will not be determined until  cost reports are submitted for hospital fiscal periods that include dates of service on or after April 6, 2009.  Final reimbursement cost settlements for non-contract hospital inpatient services impacted by this latest court order will not be determined until  DHCS completes audits of cost reports for hospital fiscal periods that include dates of service on or after April 6, 2009.  If the court order concerning AB 1183 reductions for hospital services is still in effect at the time of tentative or final reimbursement settlement, DHCS will not apply the CMAC-5 percent rate enacted by AB 1183 in calculating a tentative or final settlement for a hospital for dates of service on or after April 6, 2009.  However, in that event, DHCS will recalculate the reimbursement settlement to apply the CMAC- 5 percent reduction if this court order is ultimately overturned.

As with past actions DHCS has taken to suspend payment reductions mandated by either AB 5 or AB 1183 for other services in accordance with previous court orders, DHCS’  suspension of AB 1183 payment reductions for the hospital services described in this bulletin is subject to future court decisions.

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