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levels for outpatient services, shifting to outpatient care will be less costly for hospitals.  This avoids the cumbersome nature of certified public expenditures and ensures an annual cost of living increase.  Using an intergovernmental transfer to compensate for those costs the state does not pay can keep this option budget neutral to the state.  

Modify DSH. Seek a federal law change that allows DSH funding to be used to pay for county and University of California hospital systems uncompensated costs for clinic and physician services.  This would allow a shift of services to lower cost alternatives without a commensurate loss of funding.   Note: the DSH funds available would still be limited given California’s relatively low DSH allotment proportionate to statewide uncompensated care.

Realign inpatient and outpatient hospital payments.  The Medi-Cal Reimbursement structure for inpatient and outpatient services should be realigned to create more rational incentives to deliver care in the appropriate setting, and provide a means to increase outpatient rates.  


Payment reform will require an upfront initial investment of funds that in the long term should reduce the cost of health care.  Increases to severely low institutional and non-institutional payment rates can be funded through an expanded application of the existing certified public expenditure process, increased use of intergovernmental transfers, new provider taxes or fees, and an increased commitment of the state general fund.

2-D. Strengthening and Transforming the California Children’s Services Program  

The California Children’s Services (CCS) program ensures that low-income children who are residents of California with severe health needs, such as cancer, AIDS, and neonatal intensive care, are able to obtain treatment for those conditions.  Children covered by CCS are either eligible for Medi-Cal, Healthy Families, or state/county-only coverage.5  

Current Status in California

Enrollment in the CCS program has grown significantly, and there are several likely reasons for this.  First, the expansion of coverage in Medi-Cal and Healthy Families has likely resulted in more health care conditions being diagnosed and referred to CCS for treatment.  In addition, the expansion of managed care for Medi-Cal and Healthy Families enrollees may have created additional incentives to move children into CCS.  With the exception of some of the County Organized Health Systems (COHS), treatment of CCS program conditions is carved out of Healthy Families and Medi-Cal managed care plans.  The state and counties are responsible for providing CCS services for those children, and receive reimbursements through the Medi-Cal fee-for-service program.  This provides some incentive for health plans to refer children to CCS

5 Under the current Section 1115 waiver, the federal government matches the cost of services provided through CCS for children in state/county-only coverage.  The state and counties evenly split program costs.  These children only qualify for services delivered through CCS.

Health Management Associates/Harbage ConsultingPage 19

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