newsroom

Print PDF

Attorneys

Practices

Hospitals That Have Undergone Changes of Ownership During or After 2010 Must Act Promptly to Ensure Proper Treatment Under the Hospital Quality Assurance Fee Program
September 7, 2016

Over the summer, the California Department of Health Care Services (DHCS) published and disseminated through its contractor a long awaited provider bulletin dated May 13, 2016 describing the reporting requirements for any hospital that participates in the quality assurance fee (QAF) program and has undergone a change of ownership (CHOW) in 2010 or thereafter.  This provider bulletin supplements and supersedes a prior provider bulletin issued by DHCS in August 2014 and can be accessed here

As outlined in greater detail below, if your hospital has undergone a CHOW at any time during or after 2010, which should be considered broadly to include hospital reorganizations and intra-company changes in ownership, hospital consolidations, acquisitions of part of another hospital as well as more traditional CHOWs involving unrelated parties, review the DHCS bulletin carefully and act now!  

For changes of ownership that occur after the publication of the DHCS bulletin, a new hospital owner that would like to continue to receive QAF payments and pay fees based on data from when the hospital was operated by the prior owner must submit a signed, complete, and correct Financial Responsibility Agreement to DHCS within 30 days of the date of the letter from the State granting the new owner Medi-Cal certification.  If this is done in a timely manner, the hospital will be able to continue to participate in the QAF program under its new owner without interruption.  If the new owner does not submit a Financial Responsibility Agreement within the 30 day period, it will not be eligible to receive and retain QAF supplemental payments retroactive to the effective date of the CHOW and instead, it will only be eligible to continue to participate in the QAF program and receive supplemental QAF payments from the date DHCS receives a complete and correct Financial Responsibility Agreement.   

Even though such a new owner will only be eligible to receive supplemental QAF payments from the date DHCS receives the complete and correct Financial Responsibility Agreement, the new owner will still be required to continue to pay QAF fees retroactively to the CHOW date.  This is a significant penalty for the late submission of the Financial Responsibility Agreement, especially in light of the often long delay between the effective date of a CHOW and the date the State issues its letter to the new owner notifying it of its Medi-Cal certification.   This means that hospitals undergoing CHOWs must keep an eye out for the Medi-Cal certification letter from the State, which is often sent many months after a CHOW has occurred, in order to avoid missing this important deadline. 

A new owner of a hospital that underwent a CHOW before the publication of the May 13, 2016 provider bulletin has a one-time ability to submit a Financial Responsibility Agreement on or before September 30, 2016 in order to continue to participate in the QAF program.  This would apply to any CHOW that occurred in or after 2010 and before the publication of this new DHCS bulletin.  If such a hospital does not submit a Financial Responsibility Agreement by September 30, 2016, the State could retroactively recover QAF supplemental payments made to the hospital since the CHOW date with the new owner remaining liable for the related current program QAF fees.

The May DHCS bulletin also outlines a process by which a new owner can seek to become a new hospital.  A hospital that is a “new hospital” does not participate in the HQAF program under the statute, such that it does not receive supplemental Medi-Cal payments (at least on the fee-for-service side) and does not pay QAF fees to the State.  Among other things, in order to be considered a “new hospital,” a hospital must not have a “days data source” or must have a days data source from a previous owner but not agree with the State to be financially responsible for the previous owner’s outstanding Medi-Cal obligations.  A new owner that wishes to be treated as a new hospital must submit an attestation to DHCS, under penalty of perjury signed by the CEO, within 30 days of the date of the letter from the State notifying the new owner of its Medi-Cal certification.  

Through this process, the new owner attests that the hospital is a new hospital within the meaning of the applicable law, and includes a copy of the agreement that transfers ownership or control of the hospital (e.g., asset purchase agreement), a copy of the new license as well as a copy of the new Medi-Cal certification letter from the State granting the hospital Medi-Cal certification under new ownership.  If the new owner submits a correct and complete attestation timely, and it is accepted by DHCS, it will not be liable for the QAF fees as of the effective date of its new license.  If the new owner does not submit an attestation timely, it will be responsible for the QAF fees until it submits a complete and correct new hospital attestation that is accepted by DHCS.

For CHOWs that occurred before the publication of the May 13, 2016 bulletin, the new owner may submit an attestation to DHCS on or before September 30, 2016.  If it is accepted, the new owner will be recognized as a new hospital for QAF purposes and will not be required to pay the QAF fees for the current program period retroactive to its license effective date.

Of note, the recent DHCS bulletin provides that the new hospital attestation will only be effective for the current QAF program period.  As a result, if a new owner believes it qualifies as a new hospital and as such, should not participate in the QAF program after December 31, 2016, it will have to go through a yet-to-be determined process for the next QAF program.

Please consider whether your organization has been involved in a hospital CHOW (broadly defined to include traditional and less traditional changes of ownership, reorganizations and restructurings involving related or unrelated parties) during or after 2010.  If it has, it must move quickly (and no later than September 30, 2016) in ascertaining whether to submit a Financial Responsibility or new hospital attestation. 

If you would like additional information about the recent DHCS bulletin or the QAF program more generally, please contact Lloyd Bookman at (310) 551-8185, Hope Levy-Biehl at (310) 551-8140  in Los Angeles or the San Francisco Office at (415) 875-8503.    

For media inquiries, please contact Barrett McBride at bmcbride@health-law.com or 916.456.5855.