AN ACT Relating to hospitals; amending RCW 70.39.020, 70.39.140, 70.39.150, 70.39.160, and 70.39.195; providing an effective date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. Section 3, chapter 5, Laws of 1973 1st ex. sess. as amended by section 2, chapter 288, Laws of 1984 and RCW 70.39.020 are each amended to read as follows:

As used in this chapter:

(1) "Commission" means the hospital commission of the state of Washington as created by this chapter;

(2) "Consumer" means any person whose occupation is other than the administration of health activities or the providing of health services, who has no fiduciary obligation to a health facility or other health agency, and who has no material financial interest in the rendering of health services;

(3) "Hospital" means any health care institution which is required to qualify for a license under RCW 70.41.020(2); or as a psychiatric hospital under chapter 71.12 RCW, but shall not include beds utilized by a comprehensive cancer center for cancer research, or any health care institution conducted for those who rely primarily upon treatment by prayer or spiritual means in accordance with the creed or tenets of any church or denomination.

(4) "Diagnosis-related groups" is a classification system that groups hospital patients according to principal and secondary diagnosis, presence or absence of a surgical procedure, age, presence or absence of significant comorbidities or complications, and other relevant criteria, an example of which has been adopted as the basis for prospective payment under the federal medicare program by the social security amendments of 1983, Public Law 98-21.

(5) "Medical technology" means the drugs, devices, and medical or surgical procedures used in the delivery of health care, and the organizational or supportive systems within which such care is provided.

(6) "Technology assessment" means a comprehensive form of policy research that examines the technical, economic, and social consequences of technological applications, including the indirect, unintended, or delayed social or economic impacts. In health care, such analysis must evaluate efficacy and safety as well as efficiency.

(7) "Charity care" means necessary hospital health care rendered to indigent persons, to the extent that the persons are unable to pay for the care or to pay deductibles or co-insurance amounts required by a third-party payer, as determined by the commission.

(8) "Rate" means the maximum revenue which a hospital may receive for each unit of service, as determined by the commission.

(9) "Comprehensive cancer center" means an institution and its research programs as recognized by the National Cancer Institute prior to April 20, 1983.

(10) "Region" means one of the health service areas established pursuant to RCW 70.38.085, except that King county shall be considered a separate region for the purposes of this chapter.

(11) "Public hospital district" means a municipal corporation organized and existing pursuant to chapter 70.44 RCW that is authorized to provide hospital and other health care services.

(12) "Rural hospital" means a hospital located anywhere in the state except the following areas:

(a) The entire counties of Snohomish (including Camano Island), King, Kitsap, Pierce, Thurston, Clark, and Spokane;

(b) Areas within a twenty-mile radius of an urban area with a population exceeding thirty thousand persons; and

(c) Those cities or city-clusters located in rural counties but which for all practical purposes are urban. These areas are Bellingham, Aberdeen-Hoquiam, Longview-Kelso, Wenatchee, Yakima, Sunnyside, Richland-Kennewick-Pasco, and Walla Walla.

Sec. 2. Section 15, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 14, chapter 288, Laws of 1984 and RCW 70.39.140 are each amended to read as follows:

(1) From and after a date not less than twelve months but not more than twenty-four months after the adoption of the uniform system of accounting and financial reporting required by RCW 70.39.100, as the commission may direct, the commission shall have the power to initiate such reviews or investigations as may be necessary to assure all purchasers of health care services that the total costs of a hospital are reasonably related to the total services offered by that hospital, that costs do not exceed those that are necessary for prudently and reasonably managed hospitals, that the hospital's rates are reasonably related to the hospital's aggregate costs; and that rates are set equitably among all purchasers or classes of purchasers of services without undue discrimination or preference. Effective July 1, 1985, this chapter does not preclude any hospital from negotiating with and charging any particular payer or purchaser rates that are less than those approved by the commission, if:

(a) The rates are cost justified and do not result in any shifting of costs to other payers or purchasers in the current or any subsequent year; and

((~~(c)~~)) (b) All the terms of such negotiated rates are filed with the commission within ten working days and made available for public inspection.

The commission may retrospectively disapprove such negotiated rates in accordance with procedures established by the commission if such rates are found to contravene any provision of this section.

Effective for hospital fiscal years beginning on or after July 1, 1987, this chapter does not preclude hospitals operated by public hospital districts from negotiating with and charging any particular payer or purchaser rates that are less than those approved by the districts' elected boards of commissioners, as the rates which are generally charged the public, so long as all terms of such negotiated rates are filed with the commission within ten working days and made available for public inspection.

(2) In order to properly discharge these obligations, the commission shall have full power to review projected annual revenues and approve the reasonableness of rates proposed to generate that revenue established or requested by any hospital subject to the provisions of this chapter. No hospital shall charge for services at rates exceeding those established in accordance with the procedures established hereunder. After June 30, 1985, rates for inpatient care shall be expressed using an appropriate measure of hospital efficiency, such as that based on diagnosis-related groups, and, if necessary for federal medicare participation in a hospital reimbursement control system, hospitals shall charge for such care at rates prospectively established and expressed in terms of a comparable unit of total payment, such as diagnosis-related groups. In the event any hospital reimbursement control system is implemented, children's hospitals shall be exempted until such time as a pediatric based classification system which reflects the unique resource consumption by patients of a children's hospital is perfected. For the purposes of this exemption, children's hospitals are defined as hospitals whose patients are predominantly under eighteen years of age.

Effective for hospital fiscal years beginning on or after July 1, 1987, rural hospitals and hospitals operated by public hospital districts are exempt from the rate approval function of the commission. Such hospitals shall continue to be subject to the reporting requirements of this chapter.

(3) In the interest of promoting the most efficient and effective use of health care service, and providing greater promise of hospital cost containment, the commission may develop a hospital reimbursement control system in which all payers or purchasers participate, that includes procedures for establishing prospective rates, that deals equitably with the costs of providing charity care, and that shall include the participation of the federal medicare program under the social security amendments of 1983, Public Law 98-21. The commission shall have the authority to require utilization reviews of patient care to ensure that hospital admissions and services provided are medically justified. The commission may seek approval, concurrence, or participation in such a system from any federal agency, such as the department of health and human services, prior to securing legislative approval pursuant to concurrent resolution for implementation of any hospital reimbursement control system developed pursuant to this section. The commission shall involve the legislature in the development of any plan for a hospital reimbursement control system.

(4) The commission shall assure that no hospital or its medical staff either adopts or maintains admission practices or policies which result in:

(a) A significant reduction in the proportion of patients who have no third-party coverage and who are unable to pay for hospital services;

(b) A significant reduction in the proportion of individuals admitted for inpatient hospital services for which payment is or is likely to be less than the anticipated charges for or costs of such services; or

(c) The refusal to admit patients who would be expected to require unusually costly or prolonged treatment for reasons other than those related to the appropriateness of the care available at the hospital((~~; or~~)).

(5) The commission shall serve as the state agency responsible for coordinating state actions and otherwise responding and relating to the efforts of the federal department of health and human services in planning and implementing federal cost containment programs with respect to hospitals and related health care institutions as authorized by the social security amendments of 1983, as now or hereafter amended, or other federal law, and any rules or regulations promulgated thereto. In carrying out this responsibility, the commission may assume any function or role authorized by appropriate federal regulations implementing the social security amendments of 1983; or assume any combination of such roles or functions as it may determine will most effectively contain the rising costs of the varying kinds of hospitals and related health care institutions in Washington state. In determining its functions or roles in relation to federal efforts, the commission shall seek to ensure coordination, and the reduction of duplicatory cost containment efforts, by the state and federal governments, as well as the diligent fulfillment of the purposes of this chapter and declared public policy and legislative intent herein.

Nothing in this chapter limits the ability of the department of social and health services to establish hospital payment rates pursuant to RCW 74.09.120 or in accord with a federally approvable state plan under Title XIX of the federal social security act.

Sec. 3. Section 16, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 18, chapter 288, Laws of 1984 and RCW 70.39.150 are each amended to read as follows:

To properly carry out its authority the commission shall:

(1) Compile and maintain all relevant financial, accounting, and patient discharge data in order to have available the statistical information necessary to properly conduct rate review and approval. Such data shall include necessary operating expenses, appropriate expenses incurred for charity care and for rendering services to patients who do not pay, all properly incurred interest charges, and reasonable depreciation expenses based on the expected useful life of the property and equipment involved. The commission shall define and prescribe by rule and regulation the types and classes of charges which cannot be changed except as provided by the procedure contained in RCW 70.39.160 and it shall also obtain from each such hospital a current rate schedule as well as any subsequent amendments or modifications of that schedule as it may require. So far as possible, the commission shall compile and maintain the same patient discharge data with respect to all patients as that required under the federal medicare program and the uniform billing procedures applicable to third-party payers.

(2) Permit any hospital subject to the provisions of this chapter to charge reasonable rates which will permit the hospital to render necessary, effective, and efficient service in the public interest.

(3) Take into account, in the determination of reasonable rates under this section, that it is its obligation to assure access to necessary, effective, economically viable, and efficient hospital health care capability throughout the state, rather than the solvency or profitability of any individual hospital subject to this chapter except where the insolvency of a hospital would seriously threaten the access of the rural public to basic health care services.

(4) Take into account, in the determination of reasonable rates under this section for each hospital, the recommendations of appropriate area-wide and state comprehensive health planning agencies to ensure compliance with Washington comprehensive health planning law, chapter 70.38 RCW.

(5) Permit any hospital, whether proprietary, ((~~district,~~)) public, or not-for-profit, to retain the excess of its revenues, if any, that exceed the actual cost of providing services, generated as a result of cost-effective practices, if the hospital charges do not exceed rates permitted by the commission.

(6) On or before October 1 of each year, after notice and public hearing, and in full consideration of the intent and purpose of this chapter as expressed in RCW 70.39.010, adopt a target dollar amount of total state-wide hospital revenue for the ensuing calendar year. To set the target amount, the commission shall develop a standard methodology that considers such factors as changes in the economy, affordability of hospital care, cost of hospital-purchased goods, numbers and age of the population, technology, and severity of illness of hospital patients. The commission shall endeavor, in establishing rates, to assure that total hospital revenues do not exceed the target amount for the applicable year.

(7) Effective for hospital fiscal years beginning on or after July 1, 1987, the powers and duties of the commission with respect to rural hospitals and hospitals operated by public hospital districts are limited to the compilation and maintenance of all relevant financial, accounting, and patient discharge data in order to have available the statistical data necessary to properly conduct comprehensive state-wide studies regarding the cost of and access to hospital health care and the adoption of a target dollar amount of total state-wide hospital revenue for the ensuing calendar year.

Sec. 4. Section 17, chapter 5, Laws of 1973 1st ex. sess. as amended by section 19, chapter 288, Laws of 1984 and RCW 70.39.160 are each amended to read as follows:

From and after the date determined by the commission pursuant to RCW 70.39.140, no hospital subject to the provisions of this chapter shall change or amend that schedule of rates and charges of the type and class which cannot be changed without prior approval of the commission, except in accordance with the following procedure:

(1) Any request for a change in rate schedules or other charges must be filed in writing in the form and content prescribed by the commission and with such supporting data as the hospital seeking the change deems appropriate. Unless the commission orders otherwise as provided for in subsection (4) of this section, no hospital shall establish such changes except after publication and notice to the commission of at least thirty days from the time the rate is intended to go into effect. All proposed changes shall be plainly indicated on the schedule effective at that time and shall be open to public inspection. Upon receipt of notice, the commission may suspend the effective date of any proposed change. In any such case a formal written statement of the reasons for the suspension will be promptly submitted to the hospital. Unless suspended, any proposed change shall go into effect upon the date specified in the application.

(2) In any case where such action is deemed necessary, the commission shall promptly, but in any event within thirty days, institute proceedings as to the reasonableness of the proposed changes. The suspension may extend for a period of not more than thirty days beyond the date the change would otherwise go into effect: PROVIDED, That should it be necessary, the commission may extend the suspension for an additional thirty days. After the expiration of ninety days from the date the rate is intended to go into effect the new rate will go into effect, if the commission does not approve, disapprove, or modify the request by that time.

(3) Such proposed changes shall be considered at a public hearing, the time and place of which shall be determined by the commission. The hearing shall be conducted by the commission. Evidence for and against the requested change may be introduced at the time of the hearing by any interested party and witnesses may be heard. The hearing may be conducted without compliance with formal rules of evidence.

(4) The commission may, in its discretion, permit any hospital to make a temporary change in rates which shall be effective immediately upon filing and in advance of any review procedure when it deems it in the public interest to do so. Notwithstanding such temporary change in rates, the review procedures set out in this section shall be conducted by the commission as soon thereafter as is practicable.

(5) Every decision and order of the commission in any contested proceeding shall be in writing and shall state the grounds for the commission's conclusions. The effects of such orders shall be prospective in nature.

(6) Effective for hospital fiscal years beginning on or after July 1, 1987, rural hospitals and hospitals operated by public hospital districts may change or amend the schedule of rates so long as the revised schedule of rates is provided to the commission within thirty days of adoption by the hospital's governing board.

Sec. 5. Section 23, chapter 288, Laws of 1984 and RCW 70.39.195 are each amended to read as follows:

Each hospital under this chapter shall print and make available for public inspection as prescribed by the commission by rule a schedule of its rates as approved by the commission or, in the case of a rural hospital or a hospital operated by a public hospital district, a schedule of its rates as approved by the hospital's governing board.

NEW SECTION. Sec. 6. This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect July 1, 1987.