Section 14105.281.

(a) The Legislature finds and declares all of the following:

(1) That because the implementation of Section 14105.28 is expected to require several years and further rate changes may make the transition to an inpatient hospital reimbursement methodology based on diagnosis-related groups more difficult, and because of the need to take into account the amount of base payments when combined with supplemental payments made to inpatient hospitals, including payments provided as a result of the hospital fee set forth in Article 5.22 (commencing with Section 14167.31) and Article 5.225 (commencing with Section 14167.41), it is necessary to impose the rate freeze enacted in this section.

(2) (A) Upon implementation of Article 5.21 (commencing with Section 14167.1) and Article 5.22 (commencing with Section 14167.31), as added by Assembly Bill 1383 of the 2009–10 Regular Session, supplemental payments shall be made to hospitals that have contracts negotiated pursuant to the Selective Provider Contracting Program, provided that rates under these contracts are not reduced below the contract rates in effect on the effective date of Article 5.21 (commencing with Section 14167.1), as added by Assembly Bill 1383 of the 2009–10 Regular Session.

(B) Assembly Bill 1383 of the 2009–10 Regular Session was signed into law on October 11, 2009, and the effective date of Article 5.21 (commencing with Section 14167.1) was January 1, 2010. Therefore, in consideration of the notice provided by Assembly Bill 1383 of the 2009–10 Regular Session, and in further consideration that the negotiated contract rates in effect on January 1, 2010, or the rates in effect on July 1, 2010, to the extent those rates are lower than the rates in effect on January 1, 2010, as provided in paragraph (1) of subdivision (c), are sufficient to conform with the standards set forth in Section 1396a(a)(30)(A) of Title 42 of the United States Code, as well as the existence of supplemental payments to be made under Article 5.21 (commencing with Section 14167.1), the Legislature exercises its discretion, in consultation with the department, to freeze rates at the levels in effect for these hospitals on January 1, 2010, or the rates in effect on July 1, 2010, to the extent that those rates are lower than the rates in effect on January 1, 2010, as provided in paragraph (1) of subdivision (c).

(3) The freeze shall remain in effect during the period of time supplemental payments are made under Article 5.21 (commencing with Section 14167.1), and thereafter, to the extent that the rates, alone or in combination with any available supplemental payments, are consistent with federal law as provided in this section.

(b) Notwithstanding any other provision of law, in order to develop and implement changes in the methodology for payments for hospital inpatient services, the director shall freeze rates applicable to inpatient hospital services, as specified in this section.

(c) (1) Reimbursement rates for inpatient hospital services for all hospitals, except designated public hospitals, as defined in subdivision (d) of Section 14166.1, that receive Medi-Cal reimbursement from the State Department of Health Care Services, both under contract with the Selective Provider Contracting Program as well as noncontract hospitals, shall be frozen to the lesser of the amount paid on January 1, 2010, or the amount paid on July 1, 2010. The rate freeze shall be in effect for reimbursements for inpatient hospital services provided to Medi-Cal beneficiaries beginning on July 1, 2010, through and including the date on which the Medicaid Management Information System converts to claim processing based on the new reimbursement methodology developed pursuant to Section 14105.28 and described in paragraph (1) of subdivision (b) of that section.

(2) In the event a contract hospital terminates its contract and becomes a noncontract hospital, the hospital shall receive the same rate or rates as provided in paragraph (1) as a contract hospital for inpatient hospital services provided to Medi-Cal eligible individuals while the rate freeze specified in paragraph (1) remains in effect.

(3) This section nullifies any agreement between the state and a hospital for rate adjustments that would be inconsistent with this section. Other provisions of any of those agreements shall be unchanged by this section.

(4) In the event a noncontract hospital elects to become a contract hospital after July 1, 2010, at a negotiated rate or negotiated rates less than the freeze amount provided in paragraph (1), the hospital shall receive the contract rate or rates while the freeze remains in effect.

(d) For purposes of this section, the reimbursement for inpatient hospital services includes the amounts paid for all categories of inpatient services allowable by Medi-Cal and shall not include any supplemental payments. The reimbursement includes the amounts paid for routine services together with all related ancillary services.

(e) Within 90 days of the date this section becomes effective, the department shall develop and provide to all hospitals the methodology that will be utilized to implement the rate freeze required by this section for noncontract hospitals.

(f) (1) For dates of service on and after July 1, 2010, the department shall reconcile the payments, as limited by subdivision (c), to the amounts that the hospitals, that are subject to the new methodology set forth in Section 14105.28, would have received if the new methodology had been in effect. The department shall identify the data that will be used in making the reconciliations.

(2) The department shall implement the reconciliation process on the date that the payment methodology based on diagnosis-related groups has been made final, but no later than June 30, 2012. The director shall execute a declaration stating the date on which the new payment methodology has become final.

(3) In the process of reconciliation, no payment, with respect to dates of service prior to the effective date of the act that added this section, shall be reduced below the amount paid pursuant to subdivision (c).

(4) Rates paid to hospitals, or for specified services, that are not subject to the methodology in paragraph (1) of subdivision (b) of Section 14105.28, shall be increased subject to the annual Budget Act.

(g) Notwithstanding subdivision (c) or any other provision of this section, for the 2011–12 fiscal year and each fiscal year thereafter, or portion thereof, in which subdivision (c) remains in effect, the department shall, subject to an appropriation in the annual Budget Act applicable to the particular fiscal year, apply an increase in reimbursement rates for all hospital services that result from the freeze imposed pursuant to subdivision (c).

(h) Notwithstanding the rulemaking provisions of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may take the actions specified in this section by means of provider bulletins or notices, policy letters, or other similar instructions, without taking regulatory action.

(i) (1) The rates provided for in this section shall be implemented only if the director determines that the rates, as established by this section, will comply with applicable federal Medicaid requirements and that federal financial participation will be available.

(2) In assessing whether federal financial participation is available, the director shall determine whether the rates comply with applicable federal Medicaid requirements, including those set forth in Section 1396a(a)(30)(A) of Title 42 of the United States Code.

(3) To the extent that the director determines that the rates do not comply with the federal Medicaid requirements, the director retains the discretion not to implement that rate and may revise the rate as necessary to comply with federal Medicaid requirements.

(j) The director shall seek any necessary federal approval for the implementation of this section. To the extent that federal financial participation is not available with respect to any rate of reimbursement described by this section, the director retains the discretion not to implement that rate and may revise the rate as necessary to comply with the federal Medicaid requirements.

(k) Subdivisions (a) to (g), inclusive, shall become inoperative, and any rate that was frozen pursuant to this section shall be restored retroactively to the rate that would have been in effect absent this section, on the effective date of the act that added this subdivision. The department shall explore other avenues that do not involve a rate freeze for achieving the stability needed, including determining base payment rates, in order to transition to an inpatient hospital reimbursement methodology based on diagnosis-related groups.

(Amended by Stats. 2011, Ch. 19, Sec. 2. Effective April 13, 2011. Subds. (a) through (g) became inoperative on April 13, 2011, pursuant to subd. (k), which was inserted by Ch. 19.)