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state general fund savings; and,

7.

Replace IGT payments to private hospitals with general fund matched payments using savings from 1 and 6.  

Cost based reimbursement systems, like that in California, are considered by many as a highly inefficient way to pay for care, one that promotes high cost services.  That is, the more a hospital spends the more reimbursement it receives.  Further, cost based reimbursement systems do not allow hospitals to generate revenue that can be then used for capital investment.  Finally, cost based reimbursement systems are also administratively complex.  The documentation processes are detailed, labor intensive, and take several years to finalize.    

The Medi-Cal payment system with its emphasis on inpatient reimbursement provides a disincentive to moving care to lower cost non-hospital settings.  As currently constructed, California’s funding is unable to achieve reform of the existing “institutional based” health care delivery system.  In addition, the $766 million annual cap on the SNCP falls far short in addressing the total uncompensated care costs in both hospital and non-hospital settings.  Finally, despite California’s authority to pay public hospitals 175 percent of their uncompensated care, the Congress has not provided California with an overall federal DSH allotment sufficient to subsidize all of the hospital uncompensated care.

Change Options

California should consider the following options:

1.

Increase the Safety Net Care Pool. Remove the cap on the SNCP and apply a growth rate to recognize significant growth in hospital and non-hospital uncompensated uninsured care with a phase-in methodology that would reduce spending on uncompensated care over time and direct that spending to premium subsidy (i.e., as more individuals are covered, hospitals and physicians should realize less uncompensated care);

2.

Return to IGT financing structure.  Move away from CPEs under Medi-Cal inpatient hospital, the SNCP, and DSH and replace with permissible IGTs.  

3.

Reimburse public hospitals up to 100 percent or 150 percent of the UPL funded with permissible IGTs.64  This approach would recognize the high rate of uninsured and insufficient DSH allotment necessary to subsidize the cost of the uninsured population.  The SNCP could be maintained to reimburse other uncompensated care costs not eligible under the hospital-specific DSH and uncompensated physician and other non-hospital costs.  California must demonstrate to the federal government that there are sufficient hospital and non-hospital uncompensated costs to absorb the increased payments and may further consider that a portion of the SNCP spending gradually

64 It is important to note that the regulations published by the Clinton Administration and still supported by its former Administrator set the non-state public hospital UPL at 150%.  

Health Management Associates/Harbage ConsultingPage 48

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