Maintaining a Healthcare Safety Net for Indigent Californians Medi-Cal Redesign Waiver Development Maintaining a Healthcare Safety Net: Securing Federal Medicaid Funding for Indigent Services April, 2004 California Association of Public Hospitals and Health Systems

Medi-Cal Redesign Presentation Purpose 2 To describe a proposal designed to maintain and protect healthcare access for Medi-Cal and medically indigent Californians To respond to requests from key State officials to develop alternatives for providing more cost-effective and medically appropriate Medi-Cal healthcare services To explore the potential use of local resources currently earmarked and expended for local indigent care as the state share of expenditures for services at public safety net facilities not normally recognized as Medi- Cal services To build on a highly successful state and local partnership in obtaining federal Medicaid payments to protect and stabilize the public healthcare safety net and generate state savings

Medi-Cal Redesign Opportunities Components of the statewide Medicaid Demonstration Project would be designed to: Better protect healthcare access and promote coordinated systems of care for Medi-Cal and medically indigent patients Stabilize and transform the public healthcare safety net Better utilize existing local resources to increase federal Medicaid funding Better navigate Medicaid payment limits and address uncertainty with current Medicaid inpatient payments 3

Medi-Cal Redesign Key Safety Net Pressures Today Steadily growing demand by vulnerable population for public healthcare safety net services Funding sources at local, state, federal levels will either decline significantly or remain flat absent change Significant expansion in Medi-Cal coverage has not been accompanied with Medi-Cal rate increases to ensure access to services Rising labor, pharmaceutical, and supply costs State and local budget crises Widening expense and revenue gap 4

Medi-Cal Redesign Why Action is Necessary for Public Safety Net Significant progress in implementing efficiencies and expanding outpatient services to low-income Californians needs to continue Fiscal constraints are leading to service curtailments – current volume, scope, and intensity of services cannot be maintained without addressing structural financial threats Medi-Cal payments are critical to ability to sustain services to medically indigents and to fulfill Welfare and Institutions Code (WIC) Section obligation Heavy reliance on Medicaid inpatient payments juxtaposed with increasingly strict limits on IGT-financed inpatient payments to public safety net facilities Increased reliance on the public safety net by high-cost Medicaid and uninsured Californians 5

Source: OSHPD Annual Financial Disclosure Report 2002 Concentration of Hospital Care to Medi-Cal and Medically Indigent Patients 6 Medi-Cal Redesign Status of Public Hospital Safety Net Cont. 6% 94% 79.3% 20.7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% # of Hospitals Hospital Costs Medi-Cal 35.2% 64.8% Hospital Costs Indigent All Other Hospitals Public Hospitals

Medi-Cal Redesign Widening Expense-Revenue Gap Expense-Revenue Gap at Public Hospitals and Health Systems $7.0 $7.2 $7.4 $7.6 $7.8 $8.0 $8.2 $8.4 $8.6 $ Billions Expenses Revenues Source: OSHPD Annual Financial Disclosure Report 7

Status of Medi-Cal Inpatient Supplemental Payments CMAC SPCP Supplemental Payments (1255, GME, 1732)  Transition to Medi-Cal Public Inpatient UPL to 100%  Waiver expires December 2004  OIG skepticism over cost savings and policy debate over intergovernmental transfers (IGTs) SB 855 DSH Supplemental Payments  OBRA ’93 DSH cap at 175%  OIG findings and policy debate over IGTs  Administrative issues Structural reforms needed to respond to these pressures 8 Current payment structure severely limits Medi-Cal payments to public hospitals and health systems.

Medi-Cal Redesign CAPH Proposal Components Pursue a Medicaid match for indigent services in public safety net facilities under a statewide Medi-Cal 1115 demonstration project Design coordinated systems of care for both Medi-Cal and indigent populations Develop local indicators of access and care coordination for both Medi-Cal and indigent populations Ensure continuance of SPCP supplemental payments Restructure SB 855 DSH cap for public hospitals to ensure receipt of Medicaid match for indigent services 9

These proposal components in the Medicaid demonstration are designed to demonstrate: 10 Medi-Cal Redesign CAPH Proposal Objectives Coordinated systems of care for all low-income groups result in efficient and economical provision of Medi-Cal services Support of public safety net infrastructure results in broader access to appropriate and cost-effective care for Medi-Cal services Reduction in inappropriate emergency room and inpatient services can be obtained without financial penalty to public hospitals and health systems Increased quality and a reduction in the burden of disease for all low-income populations can be obtained

Medi-Cal Redesign Structure of Indigent Care Match New Medicaid payment (state share and federal match) for indigent care provided at public safety net facilities and coordinated by county health systems Potential use of current Realignment funds as state share of Medicaid indigent payment -- $850 million currently provided to public hospitals alone Local flexibility in developing and administering the healthcare delivery structure, designed to assist localities in maintaining current level of WIC responsibilities 11

Medi-Cal Redesign Flow of Indigent Care Match 12 Maximum number of indigent patients to be served under each project and appropriate payment amount will be prospectively determined County will have option to voluntarily redirect a portion of Realignment payments to fund state share of a Medicaid payments to serve these patients County will be responsible for receipt of new Medicaid indigent payment, coordinating care and managing the program at the local level Periodic payments will be made as services are rendered to indigent patients up to prospectively determined maximum

13 Medicaid Demonstration Indigent Care Project Payment (State and Federal match) Current Indigent Care County Support Current County Indigent Healthcare Services Medi-Cal Redesign Flow of Indigent Care Match Cont. Proposed Flow of Payments to Public Safety Net Facilities Portion of Realignment Funding Current Realignment Funding

14 Medi-Cal Redesign Indigent Care Match Promotes Transformation Helps further transition patient care toward coordinated care model for both Medi-Cal and indigent populations that emphasizes high-quality, efficient primary care and secondary care, in conjunction with viable teaching hospitals providing necessary tertiary care Helps financially stabilize the public healthcare safety net Improves access to specialty care Promotes development and maintenance of personnel and resources to support new healthcare delivery systems. Helps ameliorate the financial penalty to public hospitals that currently flows from reducing inpatient services

Medi-Cal Redesign Indigent Care Match: Key Structural Elements Sizing of local program must be consistent with and related to current level of services provided by public healthcare safety net facilities New payments must be directed to public healthcare safety net Program cannot become an insurance product or an entitlement program Localities must have the flexibility to define scope of services subject to resources and appropriate utilization limitations Level of program funding must be predictable and stable 15

16 Clear designation of target population for services under the program Statewide Medi-Cal Demonstration Project, including new Medicaid indigent payments, must meet federal budget neutrality requirements Program must include special treatment of new Medi-Cal indigent care revenue in, or relief from, the SB 855 DSH cap for public safety net hospitals Medi-Cal indigent payments will help offset any declines in IGT- funded supplemental payments Medi-Cal Redesign Indigent Care Match: Key Structural Elements

Work paper under development Continued financial analysis and modeling Proposed expansion of the current close working relationship with the State to include this proposal 17 Medi-Cal Redesign Indigent Care Match – Process Ongoing CAPH activities include:

Promoting coordinated systems of care for both Medi-Cal and indigent populations Stabilizing and transforming the public healthcare safety net Obtaining appropriate levels of Medicaid federal financial participation Implementing structural change to address pressures on public hospital Medi-Cal payments 18 Medi-Cal Redesign Indigent Care Match – Conclusion This proposal seeks to build on the highly successful state and local partnership in obtaining federal Medicaid payments to protect the public healthcare safety net and generate state savings by: