SECTIONS 124800-124870 - California Statutes

HEALTH AND SAFETY CODE

SECTION 124800-124870

124800. The Legislature finds and declares all of the following:
(a) Rural hospitals serve as the "hub of health," and through that
role attract and retain in their communities physicians, nurses, and
other primary care providers. Because of economies of scale
compounded by reimbursement reforms, many rural hospitals will close
before the end of this decade. This will result in the departure of
primary care providers and the loss of emergency medical services
both to residents and persons traveling through the area. The
smallest and most remote facilities are at highest risk.
(b) The rural hospital is often one of the largest employers in
the community. The closure of such a hospital means the loss of a
source of employment. This has an economic impact beyond the health
sector. Further, economic development of a rural area is, in part,
tied to the existence of a hospital. People, for example, tend not to
retire to areas where there is not reasonable access to physician
and hospital-based services.
(c) Rural hospitals, especially the smaller facilities, lack
access to the sophisticated expertise necessary to deal with current
reimbursement regulations and the associated bureaucracy.
(d) Most rural hospitals are unable to participate in programs
that provide access to short- and long-term financing due to lender
requirements for credit enhancement.
(e) Because of economies of scale compounded by regulations under
Title 22 of the California Code of Regulations and other regulations,
rural hospitals have high, fixed costs that, in the present
reimbursement environment, cannot be offset by revenues generated
from serving a relatively small population base. Further, in an
economically depressed rural area, community contributions are not
sufficient to offset deficits.
(f) Rural hospitals are an important link in the Medi-Cal program,
and without special consideration that takes into account their
unique circumstances, rural hospitals will be unable to continue
providing services to Medi-Cal patients. This is especially true for
outpatient services that are reimbursed at less than 60 percent of
costs.
(g) While only a very small percentage of the Medi-Cal budget for
inpatient and outpatient services is spent for services rendered by
rural hospitals, their participation is essential to preserve the
integrity of the entire Medi-Cal program.

124805. (a) The Legislature recognizes the need to strengthen, and
in some cases salvage, rural hospitals to ensure that adequate access
to services is provided to residents of rural areas as well as
tourists and travelers who, at certain times, may outnumber the
residents. Further, the Legislature recognizes that this will require
a comprehensive approach. Therefore, the Legislature intends that:
(1) Expertise be provided to endangered rural hospitals to both of
the following:
(A) Carry out a strategic assessment of potential business and
diversification of service opportunities.
(B) Develop a specific plan of action when feasible.
(2) Access, when appropriate, be provided to special eligibility
programs within the California Health Facilities Financing Authority.
(3) Short-term technical assistance be available on fiscal and
program matters.
(4) The department continue to provide regulatory relief through
program flexibility.
(5) Inpatient reimbursement limitations be modified so as not to
single out rural hospitals for application.
(6) Reimbursement rates for outpatient services be set at a level
that will provide incentives for rural hospitals to focus on the
provision of outpatient services and that will reduce the financial
losses incurred by the facilities in providing those services.
(b) The Legislature recognizes that for certain rural settings, an
acute care hospital as defined in subdivision (a) of Section 1250
may no longer be cost-effective. Therefore, a rural alternative model
that preserves the primary and emergency care systems must be
identified, studied through demonstration projects, and developed as
a new category of health facility.
(c) The Legislature recognizes that a rural alternative facility
may not conform to what is now depicted in state or federal
regulation. Therefore, to identify a model, implement demonstration
projects, and establish the rural alternative hospital as a license
category of health facility, a cooperative effort will be required
between the department, the federal Health Care Financing
Administration, and the health care industry. To this end, the
Legislature intends that the department inform the federal Health
Care Financing Administration of its interest in establishing the
rural alternative hospital program and subsequently seek any
necessary waivers.

124810. Unless the context otherwise requires, the definitions
contained in this article govern the construction of this chapter.

124815. "Department" means the State Department of Health Services.

124820. "High-risk rural hospital," means a hospital as defined in
subdivision (a) of Section 124840 that can demonstrate through
audited and interim financial reports and projections that it is
probable that it will need to cease operations within one year.

124825. The department shall, in consultation with an organization
of interest, develop recommendations on the type and scope of
technical assistance that needs to be available to small and rural
hospitals from within the department. The recommendations of an
organization of interest shall be given consideration by the
department in development of subsequent budgets.

124830. "Director" means the State Director of Health Services.

124835. "Organizations of interest" means nonprofit organizations
that typically represent the interests of hospitals and health
systems.

124840. "Small and rural hospital" means an acute care hospital
that meets either of the following criteria:
(a) Meets the criteria for designation within peer group six or
eight, as defined in the report entitled Hospital Peer Grouping for
Efficiency Comparison, dated December 20, 1982.
(b) Meets the criteria for designation within peer group five or
seven and has no more than 76 acute care beds and is located in an
incorporated place or census designated place of 15,000 or less
population according to the 1980 federal census.

124845. "Strategically located" means a hospital as defined in
subdivision (a) of Section 124840 that, by virtue of its location, or
the location of a major portion of the hospital's service area, can
demonstrate that its existence is essential to provide health
services including emergency services and stabilization to the
service area and transient populations.

124850. The department shall provide expert technical assistance to
strategically located, high-risk rural hospitals to assist the
hospitals in carrying out an assessment of potential business and
diversification of service opportunities. In providing the technical
assistance on business opportunities, the department shall consult
with other appropriate agencies. The high-risk rural hospital, in
cooperation with the department, may develop a short-term plan of
action if, in its opinion, the results of the assessment so indicate.
The department, in consultation with an organization of interest,
shall do all of the following:
(a) Establish a process for identifying strategically located,
high-risk rural hospitals and reviewing requests from the hospitals
for assistance.
(b) Develop a standard format for the strategic assessment.
(c) Develop a model action plan.
(d) Establish criteria for review of action plans.
(e) Request input and assistance from organizations of interest.
(f) Make the strategic assessment format and model action plan
available to all small and rural hospitals.

124855. Any small and rural hospital may apply to the California
Health Facilities Financing Authority for consideration under special
eligibility programs if the hospital has successfully completed the
assessment and developed an action plan.

124860. (a) The department, after consultation with an organization
of interest, shall select two strategically located, high-risk rural
hospitals to plan and implement rural alternative hospital
demonstration projects. To the extent possible, the department shall
choose two demonstration sites, with one site serving an isolated
mountainous area where access may be impeded by adverse weather
conditions, and one site located in a rural agricultural community.
Hospitals shall be selected on the basis of their interest in
becoming a demonstration site and on their suitability as model rural
alternative hospitals. The demonstration projects shall include, but
not be limited to, identification of the following:
(1) Appropriate mix and type of services to be provided locally
and obtained on referral.
(2) Types and numbers of personnel required.
(3) Probability of, and the amount of, reimbursement under current
regulations.
(4) Statutory and regulatory changes necessary to license the
facility and maximize reimbursement.
(b) In administering the rural alternative hospital demonstration
project, the department shall do all of the following:
(1) Establish two demonstration sites on or before January 1,
1990, and operate the projects for a period of up to 18 months.
(2) Grant exceptions to the licensure requirements for general
acute care hospitals that are necessary to serve the purposes of this
section when the granting of the exceptions do not jeopardize the
health and welfare of patients.
(3) Convey to the Federal Health Care Financing Administration its
intent to establish the rural alternative hospital demonstration
project and seek any necessary appropriate waivers.
(4) Consider requests for grant funds made by demonstration site
hospitals pursuant to subdivision (a) of Section 1188.86 as meeting
criteria for priority funding.
(5) Monitor and evaluate demonstration site projects as to the
applicability of these models for statewide application.
(c) The department, based on interim findings from the
demonstration projects, shall do either of the following:
(1) Prepare and adopt regulations establishing the rural
alternative hospital as a licensed health facility by January 1,
1992.
(2) Submit to the Legislature by that date a report detailing why
a category of health facility should not be established.

124865. The department shall continue to provide regulatory relief
when appropriate through program flexibility for such items as
staffing, space, and physical plant requirements.

124870. (a) The department shall adopt regulations that will
provide for an increase in reimbursement rates for outpatient
services rendered to Medi-Cal patients by small and rural hospitals,
as defined in Section 124840, over and above those reimbursement
rates specified in Section 51509 of the California Code of
Regulations. The amount of this increase shall be governed by the
funding allocated for this specific purpose in the Budget Act, or in
another specific appropriation measure.
(b) The rate adjustment authorized by subdivision (a) shall be
allocated to eligible hospitals as follows:
(1) A separate percentage increase shall be calculated for minimum
floor and nonminimum floor hospitals based on the ratio of each
small and rural hospitals' Medi-Cal outpatient payments to the total
of all small and rural hospitals' Medi-Cal outpatient payments during
the preceding calendar year, as determined by the department. The
percentage rate increase for minimum floor hospitals shall be 125
percent of the rate increase percentage calculated for nonminimum
floor hospitals. The combined rate increases for minimum floor and
nonminimum floor hospitals shall not exceed the funds appropriated
for this purpose.
(2) For purposes of this section, "minimum floor hospital" means a
hospital (A) where Medi-Cal payments for outpatient services during
the preceding calendar year were less than 1/2 percent of the total
of Medi-Cal payments for outpatient services rendered by all small
and rural hospitals during that period and (B) where the total gross
patient revenue from all sources during that period was less than ten
million dollars ($10,000,000).
(3) For purposes of this section, "nonminimum floor hospital"
means a hospital (A) where Medi-Cal payments for outpatient services
during the preceding calendar year equaled or exceeded 1/2 percent or
of the total of Medi-Cal payments for outpatient services rendered
by all small and rural hospitals during that period or (B) where the
total gross patient revenue from all sources during that period was
ten million dollars ($10,000,000) or more.
(c) For the purpose of calculating the percentage increase, if any
eligible hospital had less than a full year of operation upon which
to determine the ratio of Medi-Cal expenditures as defined in
paragraph (1) of subdivision (b), the department shall extrapolate
the Medi-Cal paid claims expenditures for that hospital to estimate a
full year's Medi-Cal claims expenditure.
(d) Payment under this section shall be contingent upon submission
of approved claims for Medi-Cal outpatient services rendered after
January 1, 1989.
(e) The Director of Health Services shall adopt emergency
regulations pursuant to Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2 of the Government Code to
implement the rate adjustments required under this section. The
adoption of these regulations shall be deemed an emergency and
necessary for the immediate preservation of the public peace, health,
or safety. Notwithstanding any provision of Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code, emergency regulations adopted by the department to
implement the rate adjustments required under this section shall not
be subject to any review, approval, or disapproval by the Office of
Administrative Law at any stage of the rulemaking process. These
regulations shall become effective immediately upon their filing with
the Secretary of State.
(f) Notwithstanding any other provision of law, reimbursement
rates adopted pursuant to this section shall not exceed the hospital'
s usual and customary charges for services rendered.
(g) The department shall maximize federal financial participation
in implementing this section.
(h) This section shall become operative July 1, 1989.