District hospitals, with publicly elected Boards of Directors, are local governments responsible for providing for the healthcare needs of their communities. Healthcare Districts were formed in 1946 and 1947 in response to California’s acute care bed shortage after World War II. Today these healthcare Districts are still relied upon as the healthcare access points in many of California’s counties. California’s public District hospitals provide significant levels of care to the uninsured and Medi-Cal populations. Between 2010-2015 federal funds totaling $8 billion are being distributed in California to public County and UC hospitals in preparation for healthcare reform. In 19 counties, District hospitals are the only public hospitals within the county. In addition, many of the local residents in the other 9 counties that contain both public District hospitals along with either a County or UC hospital there is a significant geographic separation that limits the beneficiary’s option of seeking care at any other acute care hospital other than the public District hospital. The DHLF seeks to address these unintended consequences while working toward a remedy to expand access to needed hospital services for all Californians, especially low-income patients, across the state.

The five-year Section 1115 Medicaid waiver was signed on November 2, 2010. The waiver provided public hospitals with federal funding to expand coverage, improve their healthcare delivery systems, and provided support for the provision of care to the uninsured. While public District and Municipal, “non-designated public hospitals (NDPHs)” receive some funding to assist them with their Medicaid underpayments, they did not originally receive any federal funding related to coverage expansion, healthcare delivery system improvement or support for the provision of care to the uninsured. The Special Terms and Conditions related to the Section 1115 waiver, “California Bridge to Reform Demonstration” provides for federal funding streams to public hospitals in an effort to improve the delivery of health care throughout California, and to prepare for the federal health care reform initiatives in 2014. These funding streams are only available to public hospitals because these hospitals have the ability to provide the source of the federal match through the use of either intergovernmental transfers (IGTs) or certified public expenditures (CPEs). Public District hospitals are similar to County and UC hospitals, having the same ability to provide the required source of the federal match. During discussions related to the waiver, it was pointed out how important it was to include the public District hospitals as part of the waiver in order to ensure that these objectives could be met throughout California, not solely in the limited geographic area covered by the 21 designated public hospitals. However, only 21 pre-selected public hospitals were originally eligible for the $8 billion of federal funding provided in the waiver. The 2012-13 California budget made changes to District hospital reimbursement including providing some federal funding for care provided to the uninsured and to improve the delivery of health care in these facilities. The recent inclusion of NDPHs in federal funding previously available to county/UC hospitals is a good first step. The following statistics merit consideration as future decisions relative to funding are debated:

• 15% of the uncompensated care provided to the uninsured by all public hospitals is incurred by 46 public NDPHs. Public District and Municipal hospitals provide acute care to patients located in 28 of California’s counties, and are the sole public hospitals providing care in 19 of those counties. While the designated public hospitals provide care in 15 counties, public District hospitals are also providing care in 9 of those same counties.
• Public District hospitals provide bed capacity level that represents 35% of the total public hospital bed size availability. Many of the public District hospitals are the only provider of acute health care services in their areas or offer services that the other public or private hospitals do not offer where there is an overlap of healthcare coverage. Public District hospitals do not receive any of the $630 million of the coverage initiative dollars that were made available by the federal government.
• Finally, the remaining $2.2 billion that was made available by the federal government to expand Medicaid coverage for the zero to 133% FPL population must be administered by the County, which is often the County hospital. While the public District hospital can try to negotiate an involvement in the process as a network provider, District hospitals are subject to the County’s buy-in, coverage limits and payment rates. The public District hospital is the only government entity excluded from receiving federal dollars directly to operate their own programs. If they cannot reach agreement with the County, or the County chooses not to participate leaving their beneficiaries ineligible, the public District hospitals cannot take on the responsibility on their own.

Potential Solutions to Remedy Unintended Consequences The federal funding programs contained in the waiver include the Safety Net Care Pool (SNCP) component, which include the SNCP Uncompensated Care Pool, the Coverage Initiative, the Low Income Health Program, and the Delivery System Reform Incentive Payment (DSRIP) Pool must be distributed to public (designated and non-designated) hospitals in a fair and equitable manner. Delivery System Reform Incentive Payment (DSRIP) Pool According to The Special Terms and Conditions related to the Section 1115 waiver, “…a Delivery System Reform Incentive Pool (DSRIP) is available for the development of a program of activity that supports California’s public hospitals efforts in meaningfully enhancing the quality of care and the health of the patients and families they serve.” “DSRIP Proposals must be consistent with the hospitals’ shared mission and quality goals as well as CMS’s overarching approach for improving health care through the simultaneous pursuit of three aims: improving the experience of care, improving the health of populations, and reducing per capita costs of health care (without any harm whatsoever to individuals, families or communities).” The DSRIP provides funding in four areas:

1. Infrastructure Development
2. Innovation and Redesign
3. Population-focused Improvement
4. Urgent Improvement in Care

As noted above (the New Section 1115 Medicaid Waiver for California’s Public Hospitals), the 2012-13 California budget changed the Waiver to allow for participation in this pool by District/Municipal hospitals.

The federal funding programs contained in the waiver include the Safety Net Care Pool (SNCP) component, which include the SNCP Uncompensated Care Pool, the Coverage Initiative, the Low Income Health Program, and the Delivery System Reform Incentive Payment (DSRIP) Pool.

According to The Special Terms and Conditions related to the Section 1115 waiver the SNCP uncompensated care pool is to provide funding to “…individuals with no source of third party coverage for the services they received furnished by hospitals or other providers identified by the State. To the extent that uncompensated care expenditures are made for services furnished by entities other than the designated public hospitals, the state must identify the provider and the source of the non-federal share of the SNCP Uncompensated Care payment.” Federal funding is made available in each of the five years of the renewed Section 1115 waiver. The November 1, 2010 through June 30, 2011 funding level is $461 million, of which the public District hospitals should be entitled to $106 million or 23% and at a corresponding level during the next four years of the waiver. The source of match for these federal dollars is CPEs for the uninsured, which can be made available by the public District hospitals. As stated above in The Special Terms and Conditions, other public hospitals can participate in this program if so designated by the State. This can be accomplished through State legislation and changes to the waiver Terms/Conditions upon approval by CMS. Unlike the program described below, this is not an at risk program, as these hospitals are already providing care to the uninsured. However, public district hospitals currently do not receive any funding to help them with these payment shortfalls. The DHLF is reviewing options and seeking remedies to include district public hospitals in this funding pool. This could include state legislation and/or an amendment to the waiver that would need approval from CMS.

Under the Low Income Health Program (LIHP), not all the coverage dollars for the population that is at 134% to 200% of the Federal Poverty Level (FPL) are being spent on these programs as some counties have chosen not to participate. These “unspent” dollars provide for an opportunity to re-allocate dollars that were designated for one purpose and then not utilized for that purpose. These dollars could be used to allow public District hospitals an opportunity to participate in the waiver and to achieve the funding goals of this initiative. The stated goals of the Coverage Initiative are as follows:

• Expand Coverage
• Strengthen the Local Safety Net
• Improve Access to High Quality Care
• Create Efficiencies and Cost Savings

However, the Terms/Conditions have been written to allow these monies to be transferred into other programs within the Safety Net Care Pool of which there have already been dollars budgeted. This can be accomplished through a request from DHCS to CMS. Public District hospitals can help the State meet the stated purposes of these budget dollars by improving access throughout California. This is an opportunity to expand and improve healthcare coverage needs throughout California that should be taken very seriously.

Under the Low Income Health Program (LIHP), coverage dollars for the population that is at the zero to 133% of the Federal Poverty Level (FPL) is made available to Counties to establish healthcare delivery system networks. The goals of the MCE are to improve access to care and integration, improve the health status of enrollees, expand and improve coordination of care in the LIHP network, develop methods for Medi-Cal transition in 2014, reduce duplication of services and to achieve cost savings. While public District hospitals can negotiate with the MCE-LIHP contractor to participate in the LIHP network, they cannot become an MCE-LIHP contractor. The waiver terms/conditions specifically limit the LIHP contractor applicant to either be a County, City & County, Health Authority or Consortium of Counties serving a region. MCE-LIHP contractor restrictions limit California’s ability to take full advantage of these uncapped federal dollars. While an estimated $2.3 billion dollars has been budgeted as the line item for these programs, it is only an estimate and can be exceeded. However, public District hospitals are the only public health care entities that cannot contract directly, creating a barrier restricting the flow of these federal dollars to flow to California. There are circumstances where a public District hospital wants to be a MCE-LIHP contractor, but the County chooses not to participate in the program. The DHLF will sponsor state legislation to seek a modification of the waiver terms/conditions to allow a public District hospital to become an MCE-LIHP contractor to ensure that the stated goals of the MCE can be achieved throughout all of California.

According to The Special Terms and Conditions related to the Section 1115 waiver, “…a Delivery System Reform Incentive Pool (DSRIP) is available for the development of a program of activity that supports California’s public hospitals efforts in meaningfully enhancing the quality of care and the health of the patients and families they serve.” “DSRIP Proposals must be consistent with the hospitals’ shared mission and quality goals as well as CMS’s overarching approach for improving health care through the simultaneous pursuit of three aims: improving the experience of care, improving the health of populations, and reducing per capita costs of health care (without any harm whatsoever to individuals, families or communities).” The DSRIP provides funding in four areas:

1. Infrastructure Development
2. Innovation and Redesign
3. Population-focused Improvement
4. Urgent Improvement in Care

According to the Special Terms and Conditions related to the Section 1115 waiver, “In consultation with the designated public hospitals and to the degree it does not impede the ability of the designated public hospitals to meet the requirements and conditions contained in the delivery system reform incentive payments set forth in this section, the State may provide for milestone incentive payments to private disproportionate share hospitals and/or District disproportionate share hospitals…” Unlike the SNCP Uncompensated Care pool, funding is conditional upon establishing and meeting the goals and objectives in one or more of the four areas outlined above. It is understood that the DSRIP is not intended to provide payments for services that have already been provided, but is intended to “…support and reward hospital systems for improvement in their delivery systems that support the simultaneous pursuit of improving the experience of care, improving the health of populations, and reducing per capita costs of health care.” The source of match for these federal dollars is IGTs, which can be made available by public District hospitals. As stated above in The Special Terms and Conditions, other public hospitals can participate in this program if so designated by the State, and this can be accomplished through State legislation and changes to the waiver Terms/Conditions upon approval by CMS. Federal funding is made available in each of the five years of the renewed Section 1115 waiver. The November 1, 2010 through June 30, 2011 funding level is $600 million, and increases to $700 million a year by the third year of the waiver. This is also new money that was not made available in the prior waiver. Again, the public District hospitals cover a much larger geography of the State than the designated public hospitals, and do have funding needs in all four of the areas identified above as the purpose of the funding. However, none of this new money is being made available outside of the coverage area of the twenty-one designated public hospitals. The DHLF is reviewing and developing options to include public District hospitals in this program, allowing them to also “meaningfully enhance the quality of care and the health of the patients and families they serve.”

Today, public District hospitals play a significant role providing healthcare access to patients located in 28 of California’s counties, and are the sole public hospitals providing care in 19 of those counties. The DHLF strives to support its members as they prepare for health care reform. For some of our hospitals, help is critical if the patients in the region will receive the benefits desired in healthcare reform. The waiver is one option to assist these hospitals prepare for and provide the intended care to patients under the Affordable Care Act.