SENATE BILL REPORT

ESHB 2159

BYHouse Committee on Health Care (originally sponsored by Representatives Braddock, Anderson, P. King, Morris, Brekke and Phillips)

Creating the Washington state health commission.

House Committe on Health Care

Senate Committee on Health Care & Corrections

Senate Hearing Date(s):March 30, 1989

Senate Staff:Don Sloma (786-7414)

AS OF MARCH 28, 1989

BACKGROUND:

The Hospital Commission was created in 1973.  During its first 11 years, the commission's primary responsibilities were to ensure that hospital rates were reasonably related to costs and that costs were reasonably related to services provided.  Cost containment, however, was principally the responsibility of the hospitals themselves.

Many of the statutory changes made when the commission was reauthorized in 1984 were designed to strengthen its cost containment orientation.  The amendments expanded the commission's composition, required the gathering of discharge data, required the setting of annual hospital revenue targets, and allowed payers to negotiate discounts from approved rates in recognition of the potential benefits of increased competition within the industry.

The current commission consists of nine members appointed by the Governor and composed of representatives of hospitals, insurers, purchasers, and consumers.  Its annual budget is approximately $1.7 million, and it is currently budgeted for 25 fulltime employees.  Its operations are funded, in part, by an annual assessment against hospitals in an amount not to exceed .04 percent of each hospital's gross operating costs.

In 1988, the Legislative Budget Committee (LBC) conducted a sunset review of the Hospital Commission.  It concluded that the current rate setting approach has not been effective in controlling costs.  It recommended that alternative ways to control hospital costs be developed.  Unless the Legislature acts to reauthorize the commission in some form, it will terminate on June 30, 1989.

Presently, the certificate of need process (CON) regulates the construction or establishment of new health care facilities, substantial changes in health services, changes in bed capacity, acquisitions of major medical equipment, and capital expenditures of health care facilities in excess of $1,111,000.  Types of facilities subject to CON include:  hospitals; psychiatric hospitals; nursing homes; kidney disease treatment facilities; ambulatory surgical facilities; home health care; hospices, and certain rehabilitation facilities.  Since its creation in 1974, the CON process has been generally criticized by certain segments of the health care industry as ineffective at controlling costs, burdensome, and costly.

SUMMARY:

The Washington State Health Commission is created to replace the Washington Hospital Commission. The nine member parttime commission is replaced with one of three fulltime members.  Members shall be appointed by the Governor, confirmed by the Senate, and shall serve at the pleasure of the Governor.  No two members may belong to the same political party.

The main administrative office of the commission shall be located in Olympia, but administrative facilities may be established in other locations, if deemed necessary.

As a vehicle to control hospital costs, rate setting for individual hospitals is replaced with a "maximum allowable rate of increase" or "MARI."  MARI is the percentage of rate increase allowed over an established base.  Once computed, if a hospital's rates stay below the MARI level, no individual review will occur.

MARI is established through the following formula:

!tp1,1,7,1 !tj1!tl     NHIPI

!tlMARI   = ------------------------------  + Cc

!tj1!tl   1 - [(Me x .25) + (Md x .5)]

Where:

NHIPI=  Change in the Medicare Market Basket Index

Me=     Portion of Medicare reimbursement to total net revenue

Md=     Portion of Medicaid reimbursement to total net revenue

Cc=     Portion of charity care charges to total net revenue

Fiscal year 1988 is established as the base year for the 1990 review.

Rural hospitals, as defined, are exempt from MARI.  However, these facilities will still have to comply with data collection requirements.

Hospitals are allowed to "bank" up to three percentage points for further use, such as purchases of new equipment or construction of new facilities.

Increases above MARI are permitted upon review and approval by the commission.

Penalties shall be assessed against a hospital when non-approved rates exceed MARI as follows: for the first occurrence in five years; reduction of the budget for the following year up to 5 percent; any excess of 5 percent would be deposited in the health care access account, as created by HB 1378.  (If the account is not created, the amount would be deposited in the general fund.)  For the second occurrence in five years; a reduction up to 2 percent and the amount in excess of 2 percent would be deposited in the account.  For the third occurrence in five years the total excess would be deposited in the account and a moratorium on certificate of need for that hospital would be imposed.  If it is determined that the excess was willfully generated, revocation of the hospital license and a fine of up to $20,000 may be imposed.

Throughout the penalty phase the offending hospital is allowed a full modicum of due process rights.

Protection against discrimination is established by limiting the range of discounts permitted within any class of purchaser. Classes of purchasers are defined as: (1) purchasers of medical assistance hospital services; (2) purchasers of Medicaid hospital services; and (3) purchasers of non-Medicare and non-medical assistance hospital services.  No hospital may charge one purchaser more than 110 percent of rate charged another purchaser in the same class for the same service.  The difference allowed is associated with an increased efficiency of operation. The commission may propose modifications in this difference, if deemed appropriate.  Existing negotiated rates are exempt from these provisions.

Requirements are established to prohibit hospitals from adopting an admissions practice that would deny persons without coverage access to hospital care.  A sliding fee schedule is established that would include care without charge for persons with a income less than 100 percent of the federal poverty level.  Hospitals that do not comply with these requirements may be denied access to the Washington Health Care Facilities Authority's bonding privilege, the certificate of need process, and participation in the Medicaid program.

The certificate of need program is transferred from DSHS to the commission.  The commission is required to study CON and propose changes to the Legislature by July 1, 1990.

The commission is also required to study: (1) professional liability problems associated with health care; and (2) Medicaid hospital rate development.

Penalties are prescribed for non-MARI violations to include possible criminal charges of a gross misdemeanor and civil fines of up to $1,000 per violation.

The Washington State Health Commission is scheduled for sunset review in 1993.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested February 22, 1989

Effective Date:The bill takes effect on July 1, 1989.