(a) It is the intent of the Legislature to design a new Medi-Cal inpatient hospital reimbursement methodology based on diagnosis-related groups that more effectively ensures all of the following: (1) Encouragement of access by setting higher payments for patients with more serious conditions. (2) Rewards for efficiency by allowing hospitals to retain savings from decreased length of stays and decreased costs per day. (3) Improvement of transparency and understanding by defining the âproductâ of a hospital in a way that is understandable to both clinical and financial managers. (4) Improvement of fairness so that different hospitals receive similar payment for similar care and payments to hospitals are adjusted for significant cost factors that are outside the hospitalâs control. (5) Encouragement of administrative efficiency and minimizing administrative burdens on hospitals and the Medi-Cal program. (6) That payments depend on data that has high consistency and credibility. (7) Simplification of the process for determining and making payments to the hospitals. (8) Facilitation of improvement of quality and outcomes. (9) Facilitation of implementation of state and federal provisions related to hospital acquired conditions. (10) Support of provider compliance with all applicable state and federal requirements. (b) (1) (A) (i) The department shall develop and implement a payment methodology based on diagnosis-related groups, subject to federal approval, that reflects the costs and staffing levels associated with quality of care for patients in all general acute care hospitals in state and out of state, including Medicare critical access hospitals, but excluding public hospitals, psychiatric hospitals, and rehabilitation hospitals, which include alcohol and drug rehabilitation hospitals. (ii) The payment methodology developed pursuant to this section shall be implemented on July 1, 2012, or on the date upon which the director executes a declaration certifying that all necessary federal approvals have been obtained and the methodology is sufficient for formal implementation, whichever is later. (B) The diagnosis-related group-based payments shall apply to all claims, except claims for psychiatric inpatient days, rehabilitation inpatient days, managed care inpatient days, and swing bed stays for long-term care services, provided, however, that psychiatric and rehabilitation inpatient days shall be excluded regardless of whether the stay was in a distinct-part unit. The department may exclude or include other claims and services as may be determined during the development of the payment methodology. (C) Implementation of the new payment methodology shall be coordinated with the development and implementation of the replacement Medicaid Management Information System pursuant to the contract entered into pursuant to Section 14104.3, effective on May 3, 2010. (2) The department shall evaluate alternative diagnosis-related group algorithms for the new Medi-Cal reimbursement system for the hospitals to which paragraph (1) applies. The evaluation shall include, but not be limited to, consideration of all of the following factors: (A) The basis for determining diagnosis-related group base price, and whether different base prices should be used taking into account factors such as geographic location, hospital size, teaching status, the local hospital wage area index, and any other variables that may be relevant. (B) Classification of patients based on appropriate acuity classification systems. (C) Hospital case mix factors. (D) Geographic or regional differences in the cost of operating facilities and providing care. (E) Payment models based on diagnosis-related groups used in other states. (F) Frequency of grouper updates for the diagnosis-related groups. (G) The extent to which the particular grouping algorithm for the diagnosis-related groups accommodates ICD-10 diagnosis and procedure codes, and applicable requirements of the fede
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