SB599: Bill Text

Under current law, the public service commission (PSC) is generally responsi ble for regulating public utilities in this state. This bill extends the PSC's regulatory power to cover rate setting for hospitals. The bill requires the PSC to set maximum rates that a hospital may charge for services. Under the bill, a hospital may request rate changes according to a schedule created by the PSC. As part of the rate change review procedure, the hospital must publish a notice of review stating the process by which interested persons may become parties to the review. The hospital must also submit to the PSC its proposed financial requirements. The financial requirements include, among other things:

1. Necessary operating expenses.

2. Interest expenses on debt incurred for capital or operating costs.

3. Costs of medical education.

4. Costs of services, facilities and supplies that organizations related to the hos pital by common ownership or control supply.

5. Unrecovered costs from private parties who fail to pay the full charge for ser vices provided.

6. Fees assessed by the PSC or other regulatory agency.

7. Capital requirements.

The bill sets forth standards for the PSC's decision making including:

1. The need to reduce the rate of hospital cost increases while preserving the quality of health care.

2. Cost-related trend factors based on nationally recognized economic models.

3. Special circumstances of rural and teaching hospitals.

The PSC is authorized under this bill to disallow certain costs and revenues in determining its rate recommendation.

Under the bill, if the hospital does not accept the PSC's recommendations, the hospital must request a settlement conference between its representatives and the PSC staff. If the hospital is dissatisfied with the results of the settlement conference, the hospital may request an informal hearing before the PSC. The PSC may, by or der, conduct a formal hearing instead of an informal hearing. If a formal hearing is held, the PSC must issue at the end of the hearing its order establishing maximum rates for the hospital's year under review. If an informal hearing is held, the PSC must issue its order within 50 days after the date on which the hospital requested the hearing.

This bill authorizes hospitals to increase rates selectively if the aggregate in crease in its rates does not exceed the amount authorized by the PSC. The hospital must, prior to increasing rates, explain to the PSC its method in applying the in crease and allow the PSC 5 working days to determine if the aggregate increase ex ceeds the authorized amount. If the PSC disapproves the hospital's method in apply ing the increase, and the hospital fails to modify its method as recommended by the PSC, the PSC may challenge the method in circuit court.

Except under certain circumstances, this bill prohibits the PSC from reducing rates prior to the date of the scheduled succeeding review or during the succeeding review. The bill also prohibits the PSC from directly interfering with the patient- physician decision-making relationship, directly controlling the volume or intensity of hospital utilization or directly restricting the freedom of a hospital to exercise management decisions in complying with rates established by the PSC.

Finally, under the bill, the PSC, with certain exceptions, is responsible for re viewing and approving all of the following proposed projects:

1. A capital expenditure in excess of $1,000,000 made by or on behalf of a hospi tal.

2. The implementation of new services to a hospital that exceed $500,000 in a 12-month period.

3. An expenditure in excess of $500,000 made by or on behalf of a hospital, inde pendent practitioner, limited liability company, partnership, unincorporated medi cal group or service corporation for clinical medical equipment.

4. The purchase or acquisition of a hospital.

5. The construction or operation of an ambulatory surgery center or a home health agency.

The bill requires a person intending to undertake a project or activity subject to review to publish a notice describing the project or activity and to conduct a public hearing on the proposed project or activity. The bill also requires the PSC to publish a notice of receipt of an application for review. The PSC must also conduct a public meeting upon the request of an affected party to review projects seeking approval.

For further information see the state and local fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB599, s. 1 Section 1. 20.005 (3) (schedule) of the statutes: at the appropriate place, insert the following amounts for the purposes indicated: - See PDF for table

SB599, s. 2 Section 2. 20.155 (3) of the statutes is created to read:

SB599,3,6 20.155 (3) Hospital rate setting and capital expenditure review. (a) General program operations. The amounts in the schedule for hospital rate-setting activities under subch. II of ch. 196.

SB599,3,10 (gm) Assessments. The amounts in the schedule for hospital rate-setting acti vities of the commission under ch. 196. All moneys received under s. 196.9996 (2) and 1995 Wisconsin Act .... (this act), section 15 (1) (d) , shall be credited to this appropri ation.

SB599,4,3 (gr) Application fees. The amounts in the schedule for the capital expenditure review program under ch. 196. All moneys received under s. 196.9998 (6) shall be credited to this appropriation.

SB599, s. 3 Section 3. 20.155 (3) (a) of the statutes, as created by 1995 Wisconsin Act .... (this act), is repealed.

SB599, s. 4 Section 4. 49.45 (3) (e) 11. of the statutes is created to read:

SB599,4,9 49.45 (3) (e) 11. Notwithstanding subds. 1 to 10, the department may authorize the public service commission to determine reimbursement rates under subch. II of ch. 196.

SB599, s. 5 Section 5. 49.49 (2) (c) 1. of the statutes is amended to read:

SB599,4,14 49.49 (2) (c) 1. A discount or other reduction in price obtained by a provider of services or other entity under chs. 46 to 51 and 58 and subch. II of ch. 196 if the reduc tion in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under a medical assistance program.

SB599, s. 6 Section 6. 49.74 of the statutes, as affected by 1995 Wisconsin Act 27, is amended to read:

SB599,4,19 49.74 (title) Institutions subject to chapter chapters 150 and 196. Any institution created under the authority of s. 49.70, 49.71, 49.72 or 49.73 is subject to ch. 150 and subch. II of ch. 196.

SB599, s. 7 Section 7. 50.36 (1) of the statutes, as affected by 1995 Wisconsin Act 27, is amended to read:

SB599,5,8 50.36 (1) The department shall promulgate, adopt, amend and enforce such rules and standards for hospitals for the construction, maintenance and operation of the hospitals deemed necessary to provide safe and adequate care and treatment of the patients in the hospitals and to protect the health and safety of the patients and employes; and nothing contained herein shall pertain to a person licensed to practice medicine and surgery or dentistry. The building codes and construction standards of the department of development shall apply to all hospitals and the de partment may adopt additional construction codes and standards for hospitals, pro vided they are not lower than the requirements of the department of development. Except for the construction codes and standards of the department of development and except as provided in s. 50.39 (3) and subch. II of ch. 196, the department shall be the sole agency to adopt and enforce rules and standards pertaining to hospitals.

SB599, s. 8 Section 8. 146.37 (1g) of the statutes is amended to read:

SB599,5,25 146.37 (1g) Except as provided in s. 153.85, no person acting in good faith who participates in the review or evaluation of the services of health care providers or fa cilities or the charges for such services conducted in connection with any program organized and operated to help improve the quality of health care, to avoid improper utilization of the services of health care providers or facilities or to determine the rea sonable charges for such services, or who participates in the obtaining of health care information under ch. 153, or who participates in hospital rate-setting activities un der subch. II of ch. 196, is liable for any civil damages as a result of any act or omission by such person in the course of such review or evaluation. Acts and omissions to which this subsection applies include, but are not limited to, acts or omissions by peer review committees or hospital governing bodies in censuring, reprimanding, limiting or revoking hospital staff privileges or notifying the medical examining board under s. 50.36 or taking any other disciplinary action against a health care provider or facil ity and acts or omissions by a medical director, as defined in s. 146.50 (1) (j), in review ing the performance of emergency medical technicians or ambulance service provid ers.

SB599, s. 9 Section 9. 153.05 (4n) of the statutes is created to read:

SB599,6,4 153.05 (4n) The office shall provide the public service commission with in formation necessary for performance of duties of the public service commission under s. 196.9998 (16) (a) and as requested of the office by the public service commission.

SB599, s. 10 Section 10. Chapter 196 (title) of the statutes is amended to read:

SB599,6,6 CHAPTER 196

SB599,6,8 REGULATION OF PUBLIC UTILITIES service commission

SB599, s. 11 Section 11. Subchapter I (title) of chapter 196 [precedes 196.01] of the statutes is created to read:

SB599,6,11 chapter 196

SB599,6,12 subchapter I

SB599,6,13 regulation of public utilities

SB599, s. 12 Section 12. 196.01 (intro.) of the statutes is amended to read:

SB599,6,16 196.01 Definitions. (intro.) As used in this chapter subchapter and ch. 197, unless the context requires otherwise:

SB599, s. 13 Section 13. Subchapter II of chapter 196 [precedes 196.991] of the statutes is created to read:

SB599,6,19 Chapter 196

SB599,6,21 Subchapter II Hospital rate setting

SB599,6,22 196.991 Definitions. In this subchapter:

SB599,6,24 (1) "Capital expenditure limit" means the maximum amount of capital expen ditures that may be approved under s. 196.9998.

SB599,7,3 (1m) "Capital project" means a proposed capital expenditure that exceeds $1,000,000 or, if the purpose of converting to a new use or renovating part or all of a hospital, a proposed capital expenditure that exceeds $1,500,000.

SB599,7,4 (2) "Commission" means the public service commission.

SB599,7,5 (3) "Consumer price index" has the meaning given in s. 16.004 (8) (e) 1.

SB599,7,7 (4) "Hospital" has the meaning given in s. 50.33 (2), except that "hospital" does not include a center for the developmentally disabled, as defined in s. 51.01 (3).

SB599,7,10 (5) "Rates" means individual charges of a hospital for the services that it pro vides or, if authorized under s. 196.999 (3), the aggregate charges based on case mix measurements.

SB599,7,15 196.992 Prospective rate setting. Beginning on July 1, 1997, the commis sion shall establish and may regularly revise maximum hospital rates on a prospec tive basis. The commission shall publish biennial reports showing its proceedings, together with information necessary to describe the rate of hospital cost increases and the financial condition of hospitals.

SB599,7,16 196.993 Rule making. The commission shall promulgate all of the following:

SB599,7,18 (1) Rules that implement this subchapter. At least 2 commissioners must sign any rules that are promulgated to interpret s. 196.992.

SB599,7,20 (2) Rules that establish the rate for assessments that are authorized under s. 196.9996.

SB599,8,2 196.994 Requests for a rate change. (1) The commission shall create a schedule allowing each hospital to request rate changes annually, on or after the date the hospital receives its audited financial statements. The commission may schedule a review of the hospital's rates and revise the rates on its own initiative or at the request of any person when good cause is shown. A hospital may submit a rate request on or after the scheduled date.

SB599,8,11 (2) Within 10 days after it submits a rate request under sub. (1), the hospital shall publish a class 1 notice under ch. 985. If the hospital fails to submit a rate re quest by the date scheduled for a review under sub. (1), the commission shall publish a class 1 notice under ch. 985 within 10 days after the date scheduled for the review. This notice, whether published by the hospital or the commission, shall inform the public of the review, summarize the rate sought, if any, and state the process by which interested persons may become parties to the review. A person may become a party to the review only by notifying the commission in writing within 30 days after the date the notice is published.

SB599,8,21 (3) Each hospital shall submit its proposed financial requirements to the com mission at the same time that it submits a rate request. Except as provided in s. 196.999 (4) (g), each hospital shall provide the commission with the information that the commission determines is necessary to perform its responsibilities with respect to setting rates and monitoring established rates. Patient care and other organiza tions and hospital corporate affiliates that generate financial requirements of a hos pital under review shall also release to the commission financial or other statistical information related to the financial requirements that the commission determines is necessary to perform its responsibilities with respect to setting rates and monitor ing established rates.

SB599,8,23 (4) The commission may require hospitals to conform with a uniform reporting system.

SB599,8,25 (5) The commission shall establish and regularly publish a list of the 25 most heavily used charge elements for hospitals.

SB599,9,2 196.995 Financial requirements. (1) Financial requirements of each hospi tal that submits a rate request shall include:

SB599,9,10 (a) Necessary operating expenses, including wages, employe fringe benefits, purchased services, professional fees, repairs and maintenance, dietary and medical supplies, pharmaceuticals, utilities, insurance, standby costs and applicable taxes. Any amount representing the value of services performed by members of a religious order or other organized religious group may only be included if actually paid to members of the religious group and shall be equivalent to the amounts paid to em ployes for similar work. The commission may not use previously accumulated de preciation of capitalized assets to offset operating expenses.

SB599,9,16 (b) Interest expenses on debt incurred for capital or operating costs. Interest payments on debts incurred for capital costs shall be offset by income earned on in vestments unless the income is assigned by the donor. For the purpose of calculating the interest expense on debt incurred for capital costs to be included as financial re quirements after the sale and revaluation of a hospital, the debt may not exceed the revalued price of the hospital, as provided in sub. (4).

SB599,9,21 (c) Direct and indirect costs of medical education, allied education and research programs approved by the commission, to the extent that the costs are reasonable and necessary to maintain the quality of these programs. Costs under this para graph shall be reduced by tuition, scholarships, endowments, gifts, grants and simi lar sources of revenue.

SB599,9,24 (d) Costs of services, facilities and supplies that organizations related to the hospital by common ownership or control furnish to the hospital. These costs shall be calculated as the charge of the furnishing organization, but may not exceed a rea sonable amount in relation to the price of comparable services, facilities or supplies that could be purchased elsewhere.

SB599,10,5 (e) Unrecovered costs from private parties who fail to pay the full charge for care provided, unless the hospital fails to maintain sound credit and collection poli cies to minimize these costs.

SB599,10,6 (f) Fees assessed by the commission or other regulatory agencies.

SB599,10,14 (g) Operating fund working capital requirements. In this paragraph, "working capital requirements" means capital in use to operate the hospital at a level sufficient to avoid unnecessary borrowing, including cash, accounts receivable, inventory and prepaid expenses less accounts payable and accrued interest. Working capital re quirements shall be calculated independently of available funds, as defined in par. (i) 1. Working capital requirements shall be calculated based on the net change in the estimated year-end balance of the hospital's year under review, compared to the year-end balance of the hospital's prior fiscal year, for the following accounts:

SB599,10,15 1. Cash.

SB599,10,16 2. Accounts receivable.

SB599,10,17 3. Inventories.

SB599,10,18 4. Prepaid expenses.

SB599,10,19 5. Trade accounts payable.

SB599,10,20 6. Accrued interest payable.

SB599,11,2 (h) An amount necessary to establish and maintain a contingency fund in cash and investments equal to 2% of the budgeted gross revenue for the hospital's year under review. The hospital shall use cash and investments to establish and maintain its contingency fund and shall use the fund to meet unexpected expenses. The com mission may review any expenditure of contingency funds in a prior year that requires restoration in the hospital's year under review for reasonableness, consis tent with the nature of the unexpected expense.

SB599,11,6 (i) Capital requirements, calculated as the greater of historical, straight-line depreciation of plant and equipment or the cost of proposed capital purchases as off set by available funds, plus debt retirement expenses, prospective accumulation and capitalized interest. In this paragraph:

SB599,11,20 1. "Available funds" includes cash and investments that are not assigned by the donor and are available to meet capital needs. "Available funds" does not include op erating fund working capital requirements, prospective accumulations that are au thorized by the commission, donor-restricted or creditor-restricted funds, grants, commitments for capital requirements, debt retirement expenses or the amounts disallowed under s. 196.997 (1) (b). The commission may authorize prospective accu mulations if a capital project has lending requirements that necessitate such an ac cumulation or can lower its interest costs by borrowing, or if financial needs of a hos pital occur because of balloon payments. The commission may also authorize prospective accumulations to finance a capital project, if the cost of the capital project equals or exceeds 25% of the hospital's gross patient revenue for the current fiscal year, the hospital has submitted a 3-year capital expenditure plan to the commission and the department indicates that the capital project is consistent with the projected needs of the community.