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Non-contract Hospital Rate Reduction

September 26, 2008

Recently enacted legislation, AB 1183, the Health Budget Trailer Bill, requires a reduction to the interim payment for inpatient services provided by hospitals that do not participate in the Selective Provider Contracting Program (commonly known as non-contract hospitals), unless the hospitals meet the exemption criteria contained in the bill.

Specifically, effective October 1, 2008, AB 1183 requires the Department of Health Care Services (DHCS) to limit the amounts paid to non-contract hospitals for inpatient services to the lesser of the interim per diem rate reduced by 10 percent, or the applicable regional average per diem contract rate for tertiary and non-tertiary hospitals, reduced by 5 percent.  For the purpose of this bill, a tertiary hospital is a children’s hospital specified in Section 10727, or hospital that has been designated as a Level I or Level II trauma center by the Emergency Medical Services Authority established pursuant to Section 1797.1 of the Health and Safety Code.   

AB 1183 also requires when calculating a non-contract hospital’s cost report settlement for a hospital’s fiscal period that includes any dates of service on and after October 1, 2008, the settlement shall be limited to the lesser of the hospital’s audited allowable cost per day for inpatient services reduced by 10 percent, or the applicable regional average per diem contract rate for tertiary and non-tertiary hospitals  reduced by 5 percent, multiplied by the number of Medi-Cal covered inpatient days in the hospital’s fiscal period.
The non-contract hospitals that are subject to this payment reduction include the following:

  • All non-contract hospitals in “closed” health facility planning areas (HFPAs).
  • Non-contract hospitals in “open” HFPAs that were closed on or after July 1, 2005, but are open on October 1, 2008; or
  • Non-contract hospitals in “open” HFPAs on October 1, 2008, regardless of whether the area had ever been closed, if there are three or more hospitals with licensed general acute care beds.

The non-contract hospitals that are exempt from this payment reduction include the following:

  • Small and rural hospitals (defined in section 124840 of the Health and Safety Code). 
  • Non-contract hospitals in open HFPAs on October 1, 2008, if there are less than three hospitals with licensed general acute care beds in the HFPA.

Based on the methodology specified in AB 1183, DHCS has calculated the following interim payment rates:  

Region Tertiary Status Rate
San Francisco Bay Area

Non-tertiary

$ 1,682

San Francisco Bay Area

Tertiary

$ 2,605

Southern California

Non-tertiary

$ 1,219

Southern California

Tertiary

$ 1,898

Other

Non-Tertiary

$ 1,340

Other

Tertiary

$ 1,847


San Francisco Bay Area = Counties of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Santa Cruz, Solano, and Sonoma
Southern California = Counties of Los Angeles, Orange, Riverside, San Bernardino, and Ventura
Other Areas = All other counties or Combined Statistical Areas