What’s happening: The Department of Health Care Services (DHCS) issued demand letters last week to nearly 125 private hospitals seeking to recover overspent funds distributed through the Private Hospital Supplemental Fund (PHSF) program.
What else to know: DHCS wants to recover overspent funds from 2013-14 and 2020-21. The overpayments are due to DHCS by April 1.
DHCS will use the recovered funds to draw down additional federal funds to increase total payments in the 2023-24 PHSF program year, which was authorized through the approval of State Plan Amendment 23-0013. Additional funding will be distributed to eligible hospitals in late May 2024.
Going back to PHSF program period 2013-14, DHCS has been overdrawing their spending authority in PHSF. Under the federally approved state plan in place during these program years, DHCS only had the authority to spend a total of $236.8 million annually. That total historically consisted of $118.4 million in state General Fund (GF) matched with $118.4 million federal funds, using a 50% federal funds match rate. However, due to enhanced federal matching rates authorized under the Affordable Care Act for the adult expansion population (90% matching rate) and the COVID Public Health Emergency, the state was erroneously matching the $118.4 million in GF to these higher federal funds and spending more than $236.8 million in total for those years. DHCS didn’t have the federal authority to do this, as under the State Plan they could only spend $236.8 million in total. Therefore, DHCS needs to recover these overpayments going back to 2013-14.
In order to partially correct this mistake and minimize the impact of the recoveries on hospitals, DHCS received federal approval in the Medi-Cal State Plan to increase PHSF funding in program year 2023-24 by approximately $374 million in total payments. To do this, DHCS will be collecting the overpayments through the demand letters, matching those recoveries with federal funds, and then sending the money back to hospitals that are PHSF eligible in program year 2023-24. This results in a net increase to hospitals of $239 million over prior years. The additional amounts each individual hospital will receive will vary by hospital depending on the amount of their overpayment and their mix of Adult Expansion patients. However, preliminary data show each hospital that has a repayment and that is eligible for the PHSF in 2023-24 will at minimum receive twice as much as their overpayment. For example, if a hospital got a demand letter for $1 million, if this is paid by April 1, in late May DHCS will send the hospital at least $2 million (a net benefit of $1 million).
CHA highly recommends hospitals that are PHSF eligible in 2023-24 pay this demand letter. DHCS has indicated hospitals that do not pay these funds will not be eligible to receive their portion of the additional funding.
Unfortunately, for hospitals that were issued a demand letter due to receiving overpayments in prior years that are not PHSF eligible in 2023-24, there is no state or federal authority to allow for payment of the additional funds.